Diverse options order types in an electronic guaranteed entitlement environment

ABSTRACT

An enhanced system and method for handling, matching and executing a diverse group of limit-priced orders in an electronic options environment is disclosed. Most of the order types disclosed are automatically repriced and reposted as the NBBO changes to increase their execution opportunities. Market maker entitlements are integrated with the order processing, so that the market maker is guaranteed an allocation of the trade if the market maker is at the NBBO when an order priced at or better than the NBBO is received. Once posted to the order book, the displayed price of an order may be eligible for preferential execution in a market maker entitlement process, regardless of whether the displayed price is original or has been automatically repriced.

TECHNICAL FIELD

The disclosure relates generally to the field of electronic tradingmethods and systems and in particular to handling, matching andexecuting a diverse group of order types in an electronic tradingenvironment.

BACKGROUND

The options marketplace has only become highly automated within the pastfew years, and only a few exchanges are fully electronic. As specialistsand market makers have historically provided most of the liquidity onthe options marketplace, it has generally been a quote-driven ratherthan an order-driven market. When sending single-leg orders, users havetraditionally been limited to market orders or simple limit orders.

As the options marketplace increasingly resembles the order-drivenequities marketplace, there is a need for a trading platform that allowsusers to send a more diverse body of order types than has historicallybeen utilized on the options exchanges. The equities marketplace allowsorders to route contemporaneously to multiple market centers at multipleprice levels. However, trading on the options marketplace is stillgenerally restricted to executing at the NBBO only, with a fewexceptions.

There is a need for a system and method that allows users to send ordersat their most aggressive prices to enhance their executionopportunities. To ensure that orders execute at or near the NBBO, thereis a need for new order types that are automatically capped at or nearthe NBBO price, but may be automatically repriced as the NBBO changes.Such capping and repricing models allow the orders to conform to thegeneral practice in the options marketplace of executing at the NBBO,but also allows the orders the opportunity to execute further when theNBBO price changes. Additionally, there is a need for the new ordertypes to simultaneously respect both traditional specialist/market makerguaranteed entitlements, when they are applicable, and price/timepriority matching principles.

There is a need for more sophisticated order types that are publiclydisplayed at the most aggressive price allowed, unlike the “working”orders and “dark” orders of prior systems, which are permanently ortemporarily hidden from the marketplace. Such order types areautomatically repriced to lock or cross the NBBO after satisfying alltrading interest at the NBBO, unlike existing order types such as peggedorders, which generally track the movements of the NBBO but maintain afixed interval away to prevent them from becoming immediatelyexecutable. By providing a diverse variety of limit order types withsuch different and sophisticated behaviors, a user can choose an ordertype that accommodates his trading strategy and encourages marketparticipants to execute against his displayed order.

Additionally, there is a need for a quote engine that receives andanalyzes disseminated away market best bid and offer quotation prices,notifies the order matching engine when any quote price touches (i.e.,equals or overlaps with) any order price, and continues to notify theorder matching engine of quote price changes so that posted orders canbe repriced to take advantage of additional execution opportunities.Accordingly, there is a need for a system and method that minimizes theimpact of away market best bid and offer quote traffic on the othercomponents of the system, especially in regard to the ability to displayand execute orders and quotes with maximum speed and efficiency.

SUMMARY

According to one aspect of the present disclosure, a method forenhancing quote and order integration includes providing a market centerwhich lists a plurality of options series, wherein the market center hasan order book for each option series, has a market maker quote book foreach option series, and receives the top-of-book best bid and offerdisseminated quotation from each away market center for each optionseries, and wherein the order book, the market maker quote book, and thebest bid and offer quotations are separate until an executionopportunity is presented.

The method further includes receiving an incoming exchange-restrictedorder; a NOW order; a reprice-and-ship inside limit order; astand-your-ground inside limit order; a sweep limit order; or anintermarket sweep limit order; retrieving the side of the NBBO oppositethe incoming exchange-restricted order, and determining if the incomingorder price is equal to or overlaps with the retrieved side of the NBBO.If the incoming order price is equal to or overlaps with the retrievedside of the NBBO, the method further includes determining if theincoming order is for an option series that has a lead market maker and,if so, determining if the lead market maker has a quote at the NBBO.Wherein if the incoming order is marketable and the lead market makerhas a quote at the NBBO, the method further includes computing anallocation percentage for the lead market maker and matching theincoming order up to the lesser of the total size of the incoming orderor the computed allocation percentage amount for the lead market maker.

According to another aspect of the present disclosure, the method mayinclude, prior to computing the lead market maker allocation percentage,determining if the order book has a displayed customer order at the NBBOthat was posted earlier than the lead market maker's quote, and matchingthe incoming order with the at least one customer order. According toyet another aspect of the disclosure, the method may also have a marketmaker appointed in the option series in addition to the lead marketmaker. Wherein if the incoming order is from a specified order sendingfirm and is directed to and designates the appointed market maker and ifthe order sending firm does have permission to direct orders to thedesignated market maker, the designated market maker receives the sameprivileges as the lead market maker for the purpose of executing withthe incoming order up to the computed allocation percentage amount, ifthe designated market maker has a quote at the NBBO. According toanother aspect of the present disclosure, the market center may includea display order process and a working order process, wherein, after anincoming order is matched with the lead market maker quote, the methodmay process the incoming order in the display order process and theworking order process. According to another aspect of the presentdisclosure, if the incoming order executes with all resident interestbut still has quantity remaining to trade, then its price may need to beautomatically adjusted to a less aggressive price if it cannot be postedat its user-specified limit price.

The order types described in this embodiment of the disclosure allowusers to send orders at the most aggressive prices possible, relying onthe order matching engine to cancel or reprice the orders if they are“too” executable. To prevent an order from being “too” executable, theorder is generally checked to ensure that its user-specified price doesnot exceed a configurable percentage through the NBBO. Before an orderis posted, its displayed price is capped, if necessary, at the mostaggressive price allowed by the rules of its order type. Once posted, acapped order may be automatically repriced as the NBBO price changes.

According to another aspect of the present disclosure, the best bid andoffer disseminated quotation from each away market center and theconsolidated national best bid and offer (“NBBO”) quotations are storedin a separate structure from the order book and the market maker quotebook, and are evaluated and retrieved by a separate quote engine.Whereas the quote engine is able to see order prices in the order bookwhether they are displayed or not to the marketplace, it determines whenan away market disseminated quotation price touches the price of anycontra-side order. Wherein, if a disseminated best bid or offerquotation moves into the price of a previously touched order, the quoteengine notifies the order matching engine. The order matching engine isthen able to evaluate whether any posted reprice-and-ship inside limitorder must be repriced less aggressively, and then attempts to executethe order further. Wherein, if a disseminated best bid or offerquotation moves away from the price of a previously touched order, thequote engine also notifies the order matching engine. The order matchingengine is then able to evaluate whether any posted stand-your-groundinside limit order, sweep limit order, or intermarket sweep limit ordercan be repriced more aggressively, and then attempts to execute theorder further. Wherein, the order matching engine is not notified ofchanges to the disseminated best bids and offers that do not affect theorder book in this embodiment.

DESCRIPTION OF THE DRAWINGS

These and other features, aspects and advantages of the presentdisclosure will become better understood with regard to the followingdescription, appended claims and accompanying drawings where:

FIG. 1 is a block diagram illustrating the trading environment in whichan embodiment of the present disclosure operates;

FIG. 2 is a block diagram illustrating an overview of the architectureinvolved in the equity options electronic order book of the presentdisclosure;

FIG. 3 illustrates an order execution hierarchy of the equity optionselectronic order book of the present disclosure;

FIGS. 4A-4B are flow diagrams illustrating a process for receiving anincoming exchange-restricted buy order in an embodiment of the presentdisclosure;

FIGS. 5A-5B are flow diagrams illustrating a process for receiving anincoming exchange-restricted sell order in an embodiment of the presentdisclosure;

FIGS. 6A-6B are flow diagrams illustrating a process for receiving anincoming NOW buy order in an embodiment of the present disclosure;

FIGS. 7A-7B are flow diagrams illustrating a process for receiving anincoming NOW sell order in an embodiment of the present disclosure;

FIGS. 8A-8B are flow diagrams illustrating a process for receiving anincoming reprice-and-ship inside limit buy order in an embodiment of thepresent disclosure;

FIGS. 9A-9B are flow diagrams illustrating a process for receiving anincoming reprice-and-ship inside limit sell order in an embodiment ofthe present disclosure;

FIGS. 10A-10B are flow diagrams illustrating a process for receiving anincoming stand-your-ground inside limit buy order in an embodiment ofthe present disclosure;

FIGS. 11A-11B are flow diagrams illustrating a process for receiving anincoming stand-your-ground inside limit sell order in an embodiment ofthe present disclosure;

FIGS. 12A-12B are flow diagrams illustrating a process for receiving anincoming sweep limit buy order in an embodiment of the presentdisclosure;

FIGS. 13A-13B are flow diagrams illustrating a process for receiving anincoming sweep limit sell order in an embodiment of the presentdisclosure;

FIGS. 14A-14B are flow diagrams illustrating a process for receiving anincoming intermarket sweep limit buy order in an embodiment of thepresent disclosure;

FIGS. 15A-15B are flow diagrams illustrating a process for receiving anincoming intermarket sweep limit sell order in an embodiment of thepresent disclosure;

FIG. 16 is a flow diagram illustrating a process for (checking if anincoming buy order is too-executable;

FIG. 17 is a flow diagram illustrating a process for checking if anincoming sell order is too-executable;

FIG. 18 is a flow diagram illustrating a process for handling leadmarket maker guaranteed bid entitlements in an embodiment of the presentdisclosure;

FIG. 19 is a flow diagram illustrating a process for handling leadmarket maker guaranteed offer entitlements in an embodiment of thepresent disclosure;

FIG. 20A is a flow diagram illustrating a process for handling directedorders in an embodiment of the present disclosure;

FIG. 20B is an exemplary designated market maker/order sending firmpermissions table;

FIG. 21 is a flow diagram illustrating a process for handling designatedmarket maker guaranteed bid entitlements in an embodiment of the presentdisclosure; and

FIG. 22 is a flow diagram illustrating a process for handling designatedmarket maker guaranteed offer entitlements in an embodiment of thepresent disclosure.

DETAILED DESCRIPTION

Referring to FIG. 1, a trading environment in which an embodiment of thesystem and method of the present disclosure operates is depicted. Theexamples discussed herein describe the use and application of thepresent disclosure in an equity options market center environment, butit should be understood that the present disclosure could be used in anytype of financial instrument market center environment (e.g., equities,futures, bonds, etc.). This embodiment of the disclosure describes theuse of multiply listed single-leg equity options, wherein contracts fora specified underlying security can be bought (if the option type is acall) or sold (if the option type is a put) at a specific strike priceprior to a specific exercise date. The functionality described herein isgenerally applicable to all standard options products (includingnear-term options and LEAPs) in all underlying securities, including butnot limited to exchange-listed stocks, Exchange-Traded Funds (ETFs),Holding Company Depositary Receipts (HOLDRs), American DepositaryReceipts (ADRs), and commonly traded indices.

The trading environment of this embodiment includes a market center 20which interacts with a number of other market centers 24 (i.e. awaymarkets) and traders at order sending firms 26 and market makers 31. Itshould also be understood that the market center 20 referred to hereinrefers to a computing system having sufficient processing and memorycapabilities and does not refer to a specific physical location. Infact, in certain embodiments, the computing system may be distributedover several physical locations. It should also be understood that anynumber of traders 26 or market makers 31 or away market centers 24 caninteract with the market center 20. The market center 20 is the marketcenter on which a specific trader 26 posts a specific order, and onwhich a specific market maker 31 posts a specific quote. The marketcenter 20 includes an order matching engine 21, which validates,maintains, ranks, executes and/or routes all orders on the market center20, and which executes marketable quotes on the market center 20. Inthis embodiment, the code for the order matching engine 21 is stored inthe market center 20's memory.

The market center 20 may also include a quote and last sale interface 23that interacts with the away market centers 24 to capture quote and lastsale information. This information is stored to a best bids and offersand last sales data structure 25. This data structure 25 is where themarket best bid and offer information is stored. This data structure 25is also where the market trade reports (prints) are stored. The marketcenter 20 may also include an order and trade parameters data structure27. The order and trade parameters data structure 27 stores predefinedtrading parameters and rules that are used by the order matching engine21 in matching orders and executing trades. The market center 20 mayalso include an order and execution interface 28 which interacts withthe traders 26, the market makers 31, the away market centers 24 and theorder matching engine 21 in the order execution process.

The market center 20 may also include an order information datastructure 29 where order information is stored and a trade informationdata structure 30 where completed trade information is stored. Themarket center 20 may also include a market maker interface 32 thatinteracts with market makers 31 to capture market maker bids and offersin assigned issues. These bids and offers are depicted in a market makerquote structure 33 in this illustration.

Throughout the discussion herein, it should be understood that thedetails regarding the operating environment, data structures, and othertechnological elements surrounding the market center 20 are by way ofexample and that the present disclosure may be implemented in variousdiffering forms. For example, the data structures referred to herein maybe implemented using any appropriate structure, data storage, orretrieval methodology (e.g., local or remote data storage in data bases,tables, internal arrays, etc.). Furthermore, a market center of the typedescribed herein may support any type of suitable interface on anysuitable computer system.

Referring now to FIG. 2, a trading environment in which orders andquotes are ranked and executed is depicted. Because the market center 20disclosed in this embodiment is order-driven, which encourages ordersand quotes to compete equally, the market center 20 is designed to allowusers to send a very diverse and sophisticated body of order types. Forexample, with the disclosed market center 20, a user may, as describedin detail below, use the sophisticated order types available to masktheir trading intentions from the marketplace by using order types thatdo not display all or part of an order's size or price.

The market center 20 disclosed in this embodiment also ranks all restingorders in such a manner as to give preference to displayed tradinginterest over nondisplayed trading interest at the same price so thatusers are encouraged to send displayed limit orders at the best possibleprices. The market center 20 disclosed in this embodiment can be used ina non-competing market maker environment, a competing market makerenvironment and in an environment that does not use market makers insome or all of the issues. In a preferred embodiment, described herein,the market center 20 has a non-competing market maker environment. Themarket center order books are largely flat and open based on price/timeprinciples. As described below, lead market makers are guaranteedparticipation entitlements, but only when they are already on the NBBOin their assignments, which encourages tighter spreads and fasterexecutions.

In the non-competing market maker embodiment, described herein, marketmaker quotes cannot be automatically or manually improved for thepurpose of participating with a specific incoming order, nor can amarket maker send a price-improving order for the purpose ofintercepting a specific incoming order. In, this embodiment, marketmakers do not see an incoming order at all. As a result, a user of thissystem that sends an order is able to trade anonymously withoutdivulging his or her trading intentions. Another characteristic of thisnon-competing market maker embodiment, as described below, is that onlythe lead market maker (or alternatively, a specific, designated non-leadmarket maker who is temporarily granted lead market maker privileges ina directed order process) is entitled to guaranteed participation withan incoming order, and therefore complex market maker pro rataallocations, as used in prior systems, are not necessary in thisembodiment.

Referring specifically to FIG. 2, in this embodiment, market makers 31can send orders and quotes to the market center 20, and order sendingfirms 26 can send orders to the market center 20. Away market centers 24also route orders to the market center 20 and receive routed orders fromthe market center 20. Such “linkage” processing, however, is known andis not described herein. The order and execution interface 28 includes acustomer gateway routine 28 a, which, when executed, initiates a processthat determines whether and by what means a specific order sending firm26 is eligible to send orders to the market center 20, and also includesan order validation routine 28 b which, when executed, initiates aprocess that determines whether the specific order meets all thebusiness requirements of the market center 20. If an order is determinedto be valid, then the order and execution interface 28 releases theorder to the order matching engine 21 for further processing. Marketableorders are executed immediately, whereas nonmarketable orders that canexecute later are posted to an order book 29 a on the order datastructure 29. The order book 29 a includes all active nonmarketableorders resident on the market center 20, including fully-displayedorders, partially-displayed order and nondisplayed orders.

As illustrated in FIG. 2, market makers 31 may send orders as well. If amarket maker's order is determined to be valid, as with an order sendingfirm's order, then the order and execution interface 28 releases theorder to the order matching engine 21 for further processing. As withorder sending firm orders, marketable orders are executed immediately,whereas nonmarketable orders are posted to the same order book 29 a asare orders from order sending firms 26.

The market maker interface 32 includes a market maker direct connectroutine 32 a, and also includes a market maker quote engine 32 b, which,when executed, initiates a process that receives and analyzes marketmaker quotes. The quote and last sale interface 23 includes a quoteengine 23 a, which, when executed, initiates a process that receives andanalyzes away market BBO quotes and receives and analyzes theconsolidated NBBO quote.

In this embodiment, the order matching engine 21 includes a displayorder routine 21 a, a working order routine 21 b and an away marketroutine 21 c. When executed, the display order routine 21 a implements aprocess that maintains and ranks displayed orders. As indicated in FIG.2, market maker quotes are integrated with the display order routine 21a. The working order routine 21 b, when executed, implements a processthat maintains and ranks working orders. Working orders are ordershaving a conditional or undisplayed price and/or size that is notdisclosed to the marketplace, but is electronically accessible formatching, e.g., a discretionary order. Working orders are described indetail elsewhere. The order types of this disclosure are all consideredto be fully-displayed orders, even if their limit prices are sometimestemporarily capped at or near the NBBO, because the orders mayultimately be displayed at their original user-specified prices when theNBBO moves to a price that allows this. In contrast, the discretionaryprice of a discretionary order is never displayed publicly, bydefinition.

The display order routine 21 a receives and processes fully-displayedorders and partially-displayed orders. When presented with a marketableincoming order, the display order routine 21 a ranks disseminated marketmaker quotes and resting displayed orders or portions thereof accordingto strict price/time priority. The display order routine 21 a, in thisembodiment, includes the following sub-routines: a directed orderroutine 21 d and a lead market maker guarantee routine 21 e. Thedirected order routine 21 d is a routine that, when initiated,guarantees a specified percentage of an incoming directed order to adesignated market maker after customer orders ranked ahead of thedesignated market maker's quote execute first. The lead market makerroutine 21 e is a routine that, when initiated, guarantees a specifiedpercentage of an incoming non-directed order to a lead market makerafter customer orders ranked ahead of the lead market maker's quoteexecute first.

The working order routine 21 b receives and processespartially-displayed orders and nondisplayed orders. The working orderroutine 21 b, in this embodiment, includes the following sub-routines: areserve routine 21 g, a liquidity routine 21 h, a discretionary routine21 i and a tracking routine 21 j. The reserve routine 21 g is a routinethat, when initiated, ranks and maintains reserve orders, which displaya portion of the size to the marketplace but keep another undisplayedportion in reserve. The liquidity routine 21 h is a routine that, wheninitiated, ranks and maintains passive liquidity orders, which arecompletely nondisclosed limit orders that grant price improvement toincoming orders. The discretionary routine 21 i is a routine that, wheninitiated, ranks discretionary orders, which display a price to themarketplace but include a superior undisplayed price. The trackingroutine 21 j is a routine that, when initiated, ranks and maintainstracking liquidity orders, which are completely nondisclosed orderswhose prices automatically track the NBBO and execute only if they canprevent an incoming order from routing.

As illustrated in FIG. 2, although market maker quotes are maintained ina separate market maker quote book 33 a, they are retrieved andintegrated with displayed orders and partially-displayed orders in theprocesses initiated when the display order routine 21 a is activated(“Display Order Process”), which includes the directed order routine 21d and the lead market maker guarantee routine 21 e, when the ordermatching engine 21 evaluates matching opportunities. As also illustratedin FIG. 2, although away market quotes are maintained in a separate awaymarket BBO book 25 a, they are retrieved and integrated with displayedorders, partially-displayed orders, nondisclosed orders and market makerquotes when the order matching engine 21 evaluates matchingopportunities and routing opportunities.

FIG. 2 shows the relative rankings of various order execution routinesinitiated by the order matching engine 21. As described above, the ordermatching engine 21 has a display order routine 21 a, a working orderroutine 21 b, and an away market routine 21 c. The sequence of thesubroutines 21 d, 21 e and 21 g through 21 k generally correspond to thesequence in which the order matching engine 21, in this embodiment,attempts to process an incoming marketable order. The order matchingengine 21 attempts to execute an incoming marketable order as fully aspossible in a given routine before continuing to the next-highestranking routine.

In this embodiment, upon receiving an incoming marketable order, thedisplay order routine 21 a is typically initiated first, which activatesthe Display Order Process. The Display Order Process initiates thedirected order routine 21 d if the incoming order is a directed orderand initiates the lead market maker guarantee routine 21 e if theincoming order is unable to execute in the directed order routine 21 d.Any remaining quantity of the incoming order is released to the DisplayOrder Process. After the Display Order Process has completed, if theincoming order still has quantity available to trade, then the, workingorder routine 21 b is initiated next. It attempts to execute theremainder of the incoming order in the reserve routine 21 g first; inthe liquidity routine 21 h second; in the discretionary routine 21 ithird; and in the tracking routine 21 j fourth. If the incoming orderstill has quantity remaining and is eligible to route off the marketcenter 20, then the away market routine 21 c is initiated next.

Referring now to FIG. 3, the sequence in which resting orders and quotesare ranked for execution in a preferred embodiment is shown in greaterdetail. In the example depicted in FIG. 3, there are three orders orquotes that have been ranked by each of the order execution routineprocesses, at two price levels: the NBBO, and one tick inferior to theNBBO. When the order matching engine 21 evaluates matching and pricingopportunities for a given issue, it retrieves the order book 29 a, themarket maker quote book 33 a, and the away market BBO book 25 a andmomentarily combines them into a single ranked list of bids and a singleranked list of offers in local memory. All the bids (buy orders and bidquotations) are ranked on one side of the list, and all the offers (sellorders and offer quotations) are ranked on the opposite side of thelist. The ranked list of bids combined with the ranked list of offers isreferred to as the “virtual consolidated order and quote list” FIG. 3illustrates one side of an exemplary virtual consolidated order andquote list for a given issue.

The order matching engine 21 ranks each side of the virtual consolidatedorder and quote list according to price/time priority principles, butwith a preference for displayed orders and quotes over working orders atthe same price. This method of ranking is referred to as“price/display/time priority” in this document to indicate that anorder's display characteristics (i.e., displayed versus not displayed)trumps the time that an order is received. Simply put, at a given pricelevel, a nondisplayed order has a lower priority than a displayed orderthat was received later. As also shown in FIG. 3, resident orders andquotes always have priority over away market quotes at the same price,regardless of the time received.

Each order execution routine is responsible for ranking a subset of theresting orders and/or quotes in the virtual consolidated order and quotelist. Resting orders and quotes are generally ranked in the sequenceshown in the example of FIG. 3. Beginning with the first column of FIG.3, all market maker quotes (e.g., lead market maker quotes and non-leadmarket maker quotes) and all displayed orders (e.g., exchange-restrictedorders, inside limit orders, sweep limit orders, intermarket orders andpegged orders) are consolidated together and ranked in strict price/timepriority in the Display Order Process, regardless of the order type orquote type. The displayed portions of partially-displayed orders (forexample, the displayed portion of a reserve order, and the displayedportion of a discretionary order) are also combined with the otherfully-displayed order types and market maker quotes and ranked in strictprice/time priority in the Display Order Process.

The process initiated by the directed order routine 21 d (“DirectedOrder Process”) and the process initiated by the lead market makerguarantee routine 21 e (“LMM Guarantee Process”) match a marketableincoming order against a subset of the resting displayed orders andmarket maker quotes that are combined and ranked in the Display OrderProcess. In this embodiment, all displayed customer orders that areranked ahead of a lead market maker's quote are eligible to execute inthe LMM Guarantee Process, Similarly, all displayed customer orders thatare ranked ahead of a designated market maker's quote are eligible toexecute in the Directed Order Process. Accordingly, the displayedportion of a customer reserve order is eligible to execute in theDirected Order Process or in the LMM Guarantee Process, but itsnondisclosed reserve portion is not eligible. Similarly, the displayedprice of a customer discretionary order is eligible to execute in theDirected Order Process or the LMM Guarantee Process, but itsnondisclosed discretionary price is not eligible. If a marketableincoming order still has quantity available to trade after it hascompleted executing in the Directed Order Process or in the LMMGuarantee Process (or alternatively, if it is unable to execute ineither process), then the order matching engine 21 attempts to executethe order in the Display Order Process next, i.e., in strict price/timepriority, with no preference granted to customers or market makers.

Continuing to the second column, the process initiated by the reserveroutine 21 g (“Reserve Process”) executes the reserve portions ofresting orders only after all eligible orders and quotes at the sameprice have been executed in the Display Order Process. Reserve portionsof orders are ranked in the Reserve Process according to the price/timepriority assigned to their displayed portions in the Display OrderProcess.

Continuing to the third column, the process initiated by the liquidityroutine 21 h (“Liquidity Process”) executes passive liquidity ordersonly after any eligible reserve portions at the same price have beenexecuted in the Reserve Process. Passive liquidity orders are ranked inprice/time priority in the Liquidity Process.

Continuing to the fourth column, the process initiated by thediscretionary routine 21 i (“Discretionary Process”) executesdiscretionary orders only after any eligible passive liquidity orders atthe same price have been executed in the Liquidity Process.Discretionary prices are ranked according to the price/time priorityassigned to their displayed prices in the Display Order Process. Itshould be noted that an order executes using discretion in theDiscretionary Process only if it cannot execute at its displayed pricein the Display Order Process.

Continuing to the fifth column, the process initiated by the trackingroutine 21 j (“Tracking Process”) executes tracking orders only afterany eligible discretionary orders that can “step up” to the same pricehave been executed in the Discretionary Process, and the incoming orderis about to route off the market center 20. Tracking liquidity ordersare ranked in price/time priority in the Tracking Process.

Continuing to the last column, the process initiated by the routingroutine 21 k (“Routing Process”) routes orders to eligible away marketsif the order cannot execute at the best price on the market center 20.

After executing against all eligible orders and quotes at the NBBO inthe sequence of their ranking (from 1 through 18 in this example), if anincoming order is allowed to execute at a price inferior to the NBBO,then it would continue to execute against all eligible orders (andquotes, if allowed) at the next-best price level, i.e., at one minimumprice increment (tick) inferior to the NBBO, in the sequence of theirranking (from 19 through 30 in this example). As tracking orders canonly execute at the NBBO by definition, they are not shown in FIG. 3 atone tick inferior to the NBBO. If an order type (e.g., an intermarketsweep order) is also allowed to contemporaneously route to away marketsinferior to the NBBO, then the incoming order would continue to executeagainst the eligible away market quotes at one tick inferior to theNBBO, in the sequence of their ranking (from 31 through 33 in thisexample).

It should also be noted that certain working order types (e.g.,discretionary orders and passive liquidity orders) can execute at pricesbetween the spread (i.e., higher than the national best bid and lowerthan the national best offer) under certain conditions. A discretionaryorder is allowed to execute against an incoming order at a price betweenthe spread only if the incoming order is not priced at or better thanthe opposite side of the NBBO. Accordingly, an incoming order neverexecutes in the Discretionary Process prior to executing in the DirectedOrder Process or the LMM Guarantee Process. In contrast, in a preferredembodiment, a passive liquidity order whose price is superior to theNBBO is allowed to execute in the Liquidity Process with an incomingmarketable order, granting price improvement to the incoming order,before the remaining quantity of the incoming order attempts to executein the Directed Order Process or the LMM Guarantee Process. This isbecause price priority always trumps order execution routine priority inthis embodiment. The rules regarding the execution of passive liquidityorders at prices between the spread is described and disclosed inco-pending and co-owned U.S. patent application Ser. No. 11/416,756,filed May 3, 2006, entitled “Passive Liquidity Order,” which isincorporated by reference herein. It should be understood that this listof working orders is exemplary and that other embodiments of thedisclosure may not utilize the working orders described above or may usediffering combinations of them.

DETAILED DESCRIPTIONS AND EXAMPLES OF THE ORDER TYPES

The following section describes each order type, and provides detaileddescriptions and illustrations of the processing steps for each ordertype. The examples show a marketable incoming order that participates inthe lead market maker guarantee process before executing with otherorders in the order book, and routing to one or more away markets ifallowed by the rules of the order type. It should be noted that theorder and quote prices and volumes used in these examples is by way ofillustration.

Exchange-Restricted Orders

A limit-priced order may be designated as “exchange-restricted” toindicate that it can only execute on the market center 20 and cannot berouted. For example, an exchange-restricted sell order that is priced ator through the NBB would execute in the sequence shown below and anyremaining portion would be immediately canceled, repriced, or hidden, asdescribed later:

Bid Side of the Virtual Consolidated Order and Quote List Display PriceOrder Point Process Working Order Process Highest 1. Displayed 2.Reserve 3. Passive 4. Discretionary price orders order Liquidity ordersthat can (NBB) and quotes quantity orders step up to the at the NBB atthe NBB at the NBB NBB

An incoming exchange-restricted order that cannot execute when it isreceived is immediately posted. The nonmarketable exchange-restrictedorder is inserted in the internal order book 29 a and ranked accordingto price/time priority in the Display Order Process. The order is alsodisseminated to the public order book. Posted customerexchange-restricted orders that are priced at the NBBO are eligible toexecute against incoming marketable orders in the LMM Guarantee Processor the Directed Order Process, like any other displayed order type, ifthey have time priority over the eligible market maker quote.

An incoming exchange-restricted order that is marketable at the oppositeside of the NBBO will participate in the LMM Guarantee Process if thelead market maker is quoting at the opposite side of the NBBO.Similarly, if the business rules of the market center 20 allowexchange-restricted orders to be directed to a specific market maker,then an incoming exchange-restricted order that is marketable at theopposite side of the NBBO will participate in the Directed Order Processif the designated market maker is quoting at the opposite side of theNBBO.

Once an incoming exchange-restricted order executes all residentinterest at the NBBO, then the process must determine how to handle anyexcess quantity. If the exchange-restricted order would lock or crossthe NBBO if it were to be posted, then in this embodiment, the ordermust either be canceled or repriced, depending on the business rules ofthe market center 20. If the order should be repriced, then the processchanges its price to one tick inferior to the NBBO before posting theorder. Although an exchange-restricted order cannot proactively lock orcross the market, once posted it will “stand its ground,” i.e., willneither route nor reprice, if another market center 24 should lock orcross it.

In a different embodiment, if an exchange-restricted order would lock orcross the NBBO if it were to be posted, then the order is automaticallypegged at a tick inferior to the NBBO, and continues to reprice moreaggressively as the NBBO changes. This order type is referred to as a“Tick Back-and-Post” Order. Once the order is displayed at its originalspecified price, it ceases pegging and is never repriced again. Therules regarding the execution of Tick Back-and-Post orders are describedand disclosed in co-pending and co-owned U.S. patent application Ser.No. 11/122,689, filed May 5, 2005, entitled “Method and System forMaintaining An Order on a Selected Market Center,” which is incorporatedby reference herein. An incoming marketable Tick Back-and-Postexchange-restricted order implemented in this embodiment is eligible toparticipate in the LMM Guarantee Process or the Directed Order Process.Similarly, a posted Tick Back-and-Post exchange-restricted order iseligible to participate in the LMM Guarantee Process or the DirectedOrder Process if it is a customer order and is currently displayed atthe NBBO price.

In a different embodiment, if an exchange-restricted order would lock orcross the NBBO if it were to be posted, then the order is automaticallyhidden from the marketplace. This order type is referred to as a“Hide-or-Post” order. Hide-or-Post orders can trade through the NBBO bya specified price increment if allowed by marketplace rules. Whilehidden, the order retains the same price/time priority as if it weredisclosed, executing in the Display Order Process with incomingmarketable orders. The hidden order is disclosed to the marketplace whenthe NBBO moves to a price where posting the hidden order would not causeit to lock or cross the market. The rules regarding the execution ofHide-or-Post orders are described and disclosed in co-pending andco-owned U.S. patent application Ser. No. 11/122,679, filed May 5, 2005,entitled “Method and System for Maintaining An Order on a SelectedMarket Center,” which is incorporated by reference herein. An incomingmarketable Hide-or-Post exchange-restricted order implemented in thisembodiment is eligible to participate in the LMM Guarantee Process orthe Directed Order Process. Similarly, a posted Hide-or-Postexchange-restricted order is eligible to participate in the LMMGuarantee Process or the Directed Order Process if it is a customerorder and is currently displayed at the NBBO price. If the Hide-or-Postexchange-restricted order is hidden and its price is superior to theNBBO, then it is eligible to execute ahead of the LMM Guarantee Processor the Directed Order Process, regardless of whether the order is acustomer order or not, because it has price priority.

Incoming Exchange-Restricted Buy Order Received Process

Referring now to FIGS. 4A-4B, the process is illustrated where the ordermatching engine 21 receives an incoming exchange-restricted buy order.As an exchange-restricted order cannot be routed, any excess quantitythat cannot execute on the market center 20 cannot lock or cross theNBBO. Accordingly, in this embodiment, the excess quantity must eitherbe repriced or canceled, depending on the business rules of the marketcenter 20. It should be noted that the repricing of anexchange-restricted order in this embodiment is a permanent repricing,i.e., once the order is repriced, it is not automatically adjusted asthe NBO price changes, unlike other order types described in thisembodiment.

In step 402, the process retrieves the NBO, and in step 404, the processdetermines if the incoming exchange-restricted buy order is marketable.If the incoming exchange-restricted buy order is marketable, then theprocess continues to step 406, where it creates a virtual consolidatedorder and quote list for the option series by combining the away marketBBO book 25 a, the market maker quote book 33 a, and the internal orderbook 29 a, and ranking the orders and quotes according toprice/display/time priority, but with a preference for resident tradinginterest over away market quotes at the same price. The processcontinues to step 408, where it checks if the option series has anyassigned market makers. If it does, then the process continues to step410, where it checks if the incoming exchange-restricted buy order is adirected order or not. If the incoming exchange-restricted buy order isa directed order, then the process continues to step 414 where the“Directed Order Process” is initiated in step 2000 in FIG. 20A. If,however, the incoming exchange-restricted buy order is not a directedorder, then the process proceeds to step 412 where the “LMM GuaranteedOffer Process” is initiated instead in step 1900 in FIG. 19.

Regardless of whether the incoming exchange-restricted buy orderexecutes in the Directed Order Process, in the LMM Guaranteed OfferProcess, or in neither process (if the applicable market maker is notquoting at the NBO and is therefore ineligible for a guaranteedentitlement, or else if the issue does not have any assigned marketmakers), if the incoming exchange-restricted buy order still hasquantity available to trade, then the process continues to step 416,where it retrieves the best offer in the virtual consolidated order andquote list, i.e., the sell order, market maker quote, or disseminatedaway market quote with the highest ranking. In step 418, the processchecks if the incoming exchange-restricted buy order is still marketable(by way of explanation, if it partially executed in the Directed OrderProcess or the LMM Guaranteed Offer Process then it is possible that itis no longer marketable if the quotes and orders at the NBO wereexhausted).

If at step 418 the process determines that the incomingexchange-restricted buy order is still marketable, then it continues tostep 422, where it checks if the retrieved best offer is on or off themarket center 20. If the retrieved best offer is on the market center20, then the process continues to step 424, where if the retrieved bestoffer is a market maker quote, the process automatically generates anIOC sell pseudo-order on behalf of the underlying market maker quote.The process continues to step 426, where it matches the incomingexchange-restricted buy order against the retrieved sell order or thegenerated sell pseudo-order, at the NBO price. If the matched sell orderis a pseudo-order, then in step 428, the process notifies the marketmaker quote engine 32 b of the quantity that was executed so that themarket maker quote engine 32 b can decrement the underlying market makerquote.

The process continues to step 430, where it checks if the incomingexchange-restricted buy order still has quantity available to trade. Ifit does not, then the process continues to step 442, where it terminatesas indicated. If, however, the incoming exchange-restricted buy orderdoes still have remaining quantity, then the process returns to step416, where it retrieves the next-best offer in the virtual consolidatedorder and quote list and continues to step 418, where it checks if theincoming exchange-restricted buy order is still marketable. The processcontinues to execute the incoming exchange-restricted buy order againstall resident trading interest at the NBO as described above, until theincoming exchange-restricted buy order is depleted, or else until theretrieved best offer is an away market quote, as described next.

Returning to step 422, if the retrieved best offer is an away marketquote, then the incoming exchange-restricted buy order can execute nofurther, as it can neither route nor trade through the away market'squote. As the order type can never be routed by definition, the incomingexchange-restricted buy order is not allowed to lock or cross the NBOeither. The process continues to step 432, where it checks if thebusiness rules of the market center 20 specify that exchange-restrictedorders should be canceled or repriced. If the order should be canceled,then the process continues to step 434, where it cancels the incomingexchange-restricted buy order and terminates in step 436 as indicated.

Returning to step 432, if, however, the business rules specify thatexchange-restricted orders should be repriced instead, then the processcontinues to step 438, where the process subtracts one minimum priceincrement from the NBO and reprices the incoming exchange-restricted buyorder at the “ticked back” price. The process continues to step 440,where it ranks the remaining quantity of the incomingexchange-restricted buy order in the Display Order Process of theinternal order book 29 a according to the price/time priority of its“ticked back” price, and disseminates the order to the public orderbook. The process then terminates in step 442 as indicated. In thisembodiment, the “ticked back” exchange-restricted buy order is neverautomatically repriced again, regardless of how the NBO price changes.

Returning to step 418, if the incoming exchange-restricted buy order isno longer marketable, then the process continues to step 440, where itranks the remaining quantity of the order in the Display Order Processof the internal order book 29 a according to price/time priority, anddisseminates the order to the public order book. As the order is notmarketable, it can be posted at its original price without locking orcrossing the market. The process then terminates in step 442 asindicated.

Returning to step 404, if the incoming exchange-restricted buy order wasnever marketable, then the process continues to step 440 and 442 asdescribed above, posting the order at its original price.

Incoming Exchange-Restricted Sell Order Received Process

Referring now to FIGS. 5A-5B, the process is illustrated where the ordermatching engine 21 receives an incoming exchange-restricted sell order.This routine is very similar to the process described above in FIGS.4A-4B for receiving an incoming exchange-restricted buy order.

In step 502, the process retrieves the NBB, and in step 504, the processdetermines if the incoming exchange-restricted sell order is marketable.If the incoming exchange-restricted sell order is marketable, then theprocess continues to step 506, where it creates a virtual consolidatedorder and quote list for the option series. The process continues tostep 508, where it checks if the option series has any assigned marketmakers. If it does, then the process continues to step 510, where itchecks if the incoming exchange-restricted sell order is a directedorder or not. If the incoming exchange-restricted sell order is adirected order, then the process continues to step 514 where the“Directed Order Process” is initiated in step 2000 in FIG. 20A. If,however, the incoming exchange-restricted sell order is not a directedorder, then the process proceeds to step 512 where the “LMM GuaranteedBid Process” is initiated instead in step 1800 in FIG. 18.

Regardless of whether the incoming exchange-restricted sell orderexecutes in the Directed Order Process, in the LMM Guaranteed BidProcess, or in neither process (if the applicable market maker is notquoting at the NBB and is therefore ineligible for a guaranteedentitlement, or else if the issue does not have any assigned marketmakers), if the incoming exchange-restricted sell order still hasquantity available to trade, then the process continues to step 516,where it retrieves the best bid in the virtual consolidated order andquote list, i.e., the buy order, market maker quote, or disseminatedaway market quote with the highest ranking. In step 518, the processchecks if the incoming exchange-restricted sell order is stillmarketable (by way of explanation, if it partially executed in theDirected Order Process or the LMM Guaranteed Bid Process then it ispossible that it is no longer marketable if the quotes and orders at theNBB were exhausted).

If at step 518 the process determines that the incomingexchange-restricted sell order is still marketable, then it continues tostep 522, where it checks if the retrieved best bid is on or off themarket center 20. If the retrieved best bid is on the market center 20,then the process continues to step 524, where if the retrieved best bidis a market maker quote, the process automatically generates an IOC buypseudo-order on behalf of the underlying market maker quote. The processcontinues to step 526, where it matches the incoming exchange-restrictedsell order against the retrieved buy order or the generated buypseudo-order, at the NBB price. If the matched buy order is apseudo-order, then in step 528, the process notifies the market makerquote engine 32 b of the quantity that was executed so that the marketmaker quote engine 32 b can decrement the underlying market maker quote.

The process continues to step 530, where it checks if the incomingexchange-restricted sell order still has quantity available to trade. Ifit does not, then the process continues to step 542, where it terminatesas indicated. If, however, the incoming exchange-restricted sell orderdoes still have remaining quantity, then the process returns to step516, where it retrieves the next-best bid in the virtual consolidatedorder and quote list and continues to step 518, where it checks if theincoming exchange-restricted sell order is still marketable. The processcontinues to execute the incoming exchange-restricted sell order againstall resident trading interest at the NBB as described above, until theincoming exchange-restricted sell order is depleted, or else until theretrieved best bid is an away market quote, as described next.

Returning to step 522, if the retrieved best bid is an away marketquote, then the incoming exchange-restricted sell order can execute nofurther, as it can neither route nor trade through the away market'squote. As the order type can never be routed by definition, the incomingexchange-restricted sell order is not allowed to lock or cross the NBBeither. The process continues to step 532, where it checks if thebusiness rules of the market center 20 specify that exchange-restrictedorders should be canceled or repriced. If the order should be canceled,then the process continues to step 534, where it cancels the incomingexchange-restricted sell order and terminates in step 536 as indicated.

Returning to step 532, if, however, the business rules specify thatexchange-restricted orders should be repriced instead, then the processcontinues to step 538, where the process adds one minimum priceincrement to the NBB and reprices the incoming exchange-restricted sellorder at the “ticked back” price. The process continues to step 540,where it ranks the remaining quantity of the incomingexchange-restricted sell order in the Display Order Process of theinternal order book 29 a according to the price/time priority of its“ticked back” price, and disseminates the order to the public orderbook. The process then terminates in step 542 as indicated. In thisembodiment, the “ticked back” exchange-restricted sell order is neverautomatically repriced again, regardless of how the NBB price changes.

Returning to step 518, if the incoming exchange-restricted sell order isno longer marketable, then the process continues to step 540, where itranks the remaining quantity of the order in the Display Order Processof the internal order book 29 a according to price/time priority, anddisseminates the order to the public order book. As the order is notmarketable, it can be posted at its original price without locking orcrossing the market. The process then terminates in step 542 asindicated.

Returning to step 504, if the incoming exchange-restricted sell orderwas never marketable, then the process continues to step 540 and 542 asdescribed above, posting the order at its original price.

Exchange-Restricted Order Trading Example

In this example, the issue has an assigned lead market maker (LMM) thatis quoting at the NBO when a marketable incoming exchange-restricted buyorder is received. The exchange-restricted buy order executes in the LMMGuaranteed Offer Process and the Display Order Process before theremainder of the order is repriced at one tick inferior to the NBO andposted to the books.

The NBBO is 2.50 to 2.60 (70×150).

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60Away Market B: Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.60 Away MarketA: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.65 Away Market D: Bid 20 @2.40 Away Market D: Offer 20 @ 2.70

The market maker quote book 33 a looks like this:

Bids Offers MM2: Bid 30 @ 2.50 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45MM2: Offer 30 @ 2.70

The internal order book 29 a looks like this. Order D is on behalf of acustomer, whereas Order E is not:

Bids Offers Order A: Buy 10 @ 2.50 Order D: Sell 10 @ 2.60 Order B: Buy10 @ 2.40 Order E: Sell 10 @ 2.60 Order C Buy 10 @ 2.35 Order F: Sell 10@ 2.65The market center BBO is 2.50 to 2.60 (40×60)

The public order book looks like this:

Bids Offers 40 @ 2.50 60 @ 2.60 40 @ 2.45 10 @ 2.65 10 @ 2.40 30 @ 2.7010 @ 2.35Incoming Marketable Exchange-Restricted Buy Order is Received

In step 400, the order matching engine 21 receives the following order:

Order G: Buy 150 @ 2.60, Exchange-Restricted

In step 402, the process retrieves the NBO (2.60). In step 404, theprocess checks if incoming Buy Order G is marketable, i.e., is priced ator better than the NBO. As it is, the process continues to step 406,where it creates a virtual consolidated order and quote list. In thisexample, Sell Orders D and E were received before the LMM Offer wasquoted.

The virtual consolidated order and quote list looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Order D: Sell 10 @ 2.60 Order A: Buy 10 @2.50 Order E: Sell 10 @ 2.60 Away Market C: Bid 30 @ 2.50 LMM: Offer 40@ 2.60 LMM: Bid 40 @ 2.45 Away Market A: Offer 50 @ 2.60 Away Market B:Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.60 Order B: Buy 10 @ 2.40Order F: Sell 10 @ 2.65 Away Market A: Bid 50 @ 2.40 Away Market C:Offer 30 @ 2.65 Away Market D: Bid 20 @ 2.40 MM2: Offer 30 @ 2.70 OrderC: Buy 10 @ 2.35 Away Market D: Offer 20 @ 2.70

The process continues to step 408, where it checks if this issue has anyassigned market makers. As it does, the process continues to step 410,where it checks if incoming Buy Order G is a directed order or not. Asit is not a directed order, the process continues to step 412, where itinitiates the “LMM Guaranteed Offer Process,” and proceeds to step 1900in FIG. 19.

LMM Guarantee Process is in Effect for this Issue

In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In step1904, it checks if the LMM Offer is at the NBO (2.60). As it is, thelead market maker is entitled to guaranteed participation with incomingBuy Order G, after any superior displayed customer orders are executedfirst. The process continues to step 1908, where it checks if incomingBuy Order G's order size (150) is greater than two contracts. As it is,the process continues to step 1914.

Incoming Exchange-Restricted Buy Order Matches the Displayed CustomerSell Order with Time Priority Over the LMM Offer

In step 1914, the process checks if there are any customer sell ordersdisplayed at the NBO, and finds posted Sell Order D. The processcontinues to step 1916, where it stores the timestamp on the LMM Offerin the parameter “LMMOfferTimestamp.” In step 1918, the processretrieves the earliest displayed customer sell order at the NBO, SellOrder D, and in step 1920, the process compares the timestamp of postedSell Order D to the LMMOfferTimestamp. As posted Sell Order D wasreceived earlier than the LMM Offer, the process continues to step 1922,where it matches 10 contracts of incoming Buy Order G with posted SellOrder D, completely depleting posted Sell Order D and removing it fromthe books.

The process continues to step 1924, where it checks if incoming BuyOrder still has quantity available to trade. As it still has 140contracts remaining, the process continues to step 1928, where it checksif there are any additional customer sell orders at the NBO. As thereare none (Sell Order E is not on behalf of a customer), the processcontinues to step 1932.

Incoming Exchange-Restricted Buy Order Matches the LMM Offer

In step 1932, the process retrieves the LMMGuaranteedPercent parameter,which is configured to 40% in this example. In step 1934, the processderives the LMMGuaranteedAllocation (56 contracts) by multiplying theLMMGuaranteedPercent (40%) by the remaining portion of incoming BuyOrder G (140 contracts). The LMMGuaranteedAllocation is the maximumquantity of contracts that can execute in the LMM Guarantee Process.

In step 1938, the process matches 40 contracts of incoming Buy Order Gagainst the LMM Offer, the lesser of the LMMGuaranteedAllocation (56contracts) and the LMM Offer size (40 contracts), at the NBO price of2.60. It does this by generating an IOC pseudo-order to Sell 40 @ 2.60on behalf of the LMM Offer, and executing incoming Buy Order G againstthe sell pseudo-order. The LMM Offer at 2.60 is completely depleted, andis removed from the virtual consolidated order and quote list. Theprocess notifies the market maker quote engine 32 b to decrement the LMMOffer by the 40 contracts executed. The LMM Guaranteed Offer Process hascompleted.

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Order E: Sell 10 @ 2.60 Order A: Buy 10 @2.50 Away Market A: Offer 50 @ 2.60 Away Market C: Bid 30 @ 2.50 AwayMarket B: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45 Order F: Sell 10 @ 2.65Away Market B: Bid 40 @ 2.45 Away Market C: Offer 30 @ 2.65 Order B: Buy10 @ 2.40 MM2: Offer 30 @ 2.70 Away Market A: Bid 50 @ 2.40 Away MarketD: Offer 20 @ 2.70 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The market maker quote engine 32 b decrements the LMM Offer by the 40contracts executed, completely depleting it. The market maker quote book33 a now looks like this (the lead market maker wilt manually replenishits offer, but this is not illustrated to simplify the example):

Bids Offers MM2: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70 LMM: Bid 40 @ 2.45The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order E: Sell 10 @ 2.60 Order B: Buy10 @ 2.40 Order F: Sell 10 @ 2.65 Order C: Buy 10 @ 2.35The market center BBO is now 2.50 to 2.60 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.50 10 @ 2.60 ← 40 @ 2.45 10 @ 2.65 10 @ 2.40 30 @2.70 10 @ 2.35

The process continues to step 1942, where it checks if incoming BuyOrder G still has any quantity available to trade. As it still has 100contracts remaining, the process continues to step 1946, where itreturns to the step where the routine was originally invoked, back tostep 412 of FIG. 4A.

Incoming Exchange-Restricted Buy Order Matches the Non-Customer SellOrder

The process continues to step 416, where it retrieves the best offer inthe virtual consolidated order and quote list, which is posted SellOrder E. In step 418, the process checks if incoming Buy Order G's price(2.60) is greater than or equal to posted Sell Order E's price (2.60).As the prices are equal, the process continues to step 422, where itchecks if posted Sell Order E is on or off the market center 20. As itis a resident book order, the process bypasses step 424 and continues tostep 426, where it matches 10 contracts of incoming Buy Order G againstposted Sell Order E, at the NBO price of 2.60. Posted Sell Order E iscompletely depleted and is removed from the books.

The NBBO is now 2.50 to 2.60 (70×90)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60 Order A:Buy 10 @ 2.50 Away Market B: Offer 40 @ 2.60 Away Market C: Bid 30 @2.50 Order F: Sell 10 @ 2.65 LMM: Bid 40 @ 2.45 Away Market C: Offer 30@ 2.65 Away Market B: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Order B: Buy 10@ 2.40 Away Market D: Offer 20 @ 2.70 Away Market A: Bid 20 @ 2.40 AwayMarket D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Order B: Buy10 @ 2.40 Order C: Buy 10 @ 2.35The market center BBO is now 2.50 to 2.65 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.50 10 @ 2.65 ← 40 @ 2.45 30 @ 2.70 10 @ 2.40 10 @2.35

The process bypasses step 428 and continues to step 430, where it checksif incoming Buy Order G still has any quantity available to trade. As itstill has 90 contracts remaining, the process returns to step 416 andretrieves the best offer in the virtual consolidated order and quotelist, which is Away Market A's offer. In step 418, the process checks ifincoming Buy Order G's price (2.60) is greater than or equal to AwayMarket A's offer (2.60). As the prices are equal, the process continuesto step 422, where it checks if Away Market A's offer is on or off themarket center 20. As it is an away market quote, incoming Buy Order Gcan execute no further, as it cannot route.

Incoming Exchange-Restricted Buy Order can Execute No Further, and isRepriced to Prevent it from Locking the NBO

The process continues to step 432, where it checks if incoming Buy OrderG should be canceled or repriced, as it is not allowed to lock themarket. In this example, the business rules of the market center 20determine that it should be repriced. In this example, the minimum priceincrement (tick) for this issue is 0.05. Accordingly, the processcontinues to step 438, where it reprices incoming Buy Order G at 2.55,one tick less than the NBO (2.60). Its original user-specified limitprice of 2.60 is retained for audit purposes, but the order is displayedat the price of 2.55 from this point forward. In step 440, the processranks Buy Order G in the Display Order Process of the internal orderbook 29 a according to its new “ticked back” price of 2.55, anddisseminates Buy Order G to the public order book. The process thenterminates in step 442 as indicated.

The NBBO is now 2.55 to 2.60 (90×90)

The virtual consolidated order and quote list now looks like this:

Bids Offers Order G: Buy 90 @ 2.55 ← Away Market A: Offer 50 @ 2.60 MM2:Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60 Order A: Buy 10 @ 2.50Order F: Sell 10 @ 2.65 Away Market C: Bid 30 @ 2.50 Away Market C:Offer 30 @ 2.65 LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Away Market B:Bid 40 @ 2.45 Away Market D: Offer 20 @ 2.70 Order B: Buy 10 @ 2.40 AwayMarket A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @2.35

The internal order book 29 a now looks like this:

Bids Offers Order G: Buy 90 @ 2.55 ← Order F: Sell 10 @ 2.65 Order A:Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35The market center BBO is now 2.55 to 2.65 (90×10)

The public order book looks like this:

Bids Offers 90 @ 2.55 ← 10 @ 2.65 40 @ 2.50 30 @ 2.70 40 @ 2.45 10 @2.40 10 @ 2.35

The virtual consolidated order and quote list is deleted from localmemory.

NOW Orders

A NOW order executes like an IOC order, but can also route off themarket center 20 to away markets 24 that have been designated as“NOW-eligible” according to the business rules implemented in theRouting Process. Only fully-electronic “fast execution” away marketsqualify for NOW order routing. A NOW-eligible away market must bequoting at the NBBO at the time an incoming NOW order is received, asthe order must be eligible for immediate execution. For example, a NOWsell order that is priced at or better than the NBB would execute in thesequence shown below:

Bid Side of the Virtual Consolidated Order and Quote List Price DisplayOrder Routing Point Process Working Order Process Process Highest 1.Displayed 2. Reserve 3. Passive 4. Discretionary 5. Tracking 6. NOW-price orders and order quantity Liquidity orders that can Liquidityeligible (NBB) quotes Orders step up to the Orders Away NBB Market Bids

An incoming NOW order that cannot execute when it is received isimmediately canceled. An incoming NOW order that is executable at theNBBO will participate in the LMM Guarantee Process if the lead marketmaker is quoting at the NBBO. Similarly, if the business rules of themarket center 20 allow NOW orders to be directed to a specific marketmaker, then an incoming NOW order will participate in the Directed OrderProcess if the designated market maker is quoting at the NBBO.

An incoming NOW order routes to NOW-eligible away markets in thesequence of their ranking, which is determined by the Routing Process. Ahigher-ranking away market that is not NOW-eligible is bypassed in favorof a lower-ranking away market that is NOW-eligible. If none of the awaymarkets at the NBBO are NOW-eligible, then the incoming NOW order willnot route, and any remaining quantity is immediately canceled. Anyquantity of a NOW order that is routed to a NOW=eligible away market andis subsequently declined, or times out, is also immediately canceledinstead of being re-routed.

Incoming NOW Buy Order Received Process

Referring now to FIGS. 6A-6B, the process is illustrated where the ordermatching engine 21 receives an incoming NOW buy order. In thisembodiment, a NOW order can route off the market center 20 only toNOW-eligible away markets 24 quoting at the NBBO.

In step 602, the process retrieves the NBO, and in step 604, the processdetermines if the incoming NOW buy order is marketable. If the processdetermines that the incoming NOW buy order is marketable, then theprocess continues to step 606, where it creates a virtual consolidatedorder and quote list for the option series.

The process continues to step 608, where it checks if the option serieshas any assigned market makers. If it does, then the process continuesto step 610, where it checks if the incoming NOW buy order is a directedorder or not. If the incoming NOW buy order is a directed order, thenthe process continues to step 614 where the “Directed Order Process” isinitiated in step 2000 in FIG. 20A. If, however, the incoming NOW buyorder is not a directed order, then the process proceeds to step 612where the “LMM Guaranteed Offer Process” is initiated instead in step1900 in FIG. 19.

Regardless of whether the incoming NOW buy order executes in theDirected Order Process, in the LMM Guaranteed Offer Process, or inneither process (if the applicable market maker is not quoting at theNBO and is therefore ineligible for a guaranteed entitlement, or else ifthe issue does not have any assigned market makers), if the incoming NOWbuy order still has quantity available to trade, then the processcontinues to step 616, where it retrieves the best offer in the virtualconsolidated order and quote list, i.e., the sell order, market makerquote, or disseminated away market quote with the highest ranking. Instep 618, the process checks if the incoming NOW buy order is stillmarketable (by way of explanation, it is possible that it is no longermarketable if the quotes and orders at the NBO were exhausted).

At step 618, if the process determines that the incoming NOW buy orderis still marketable, then it continues to step 620, where it checks ifthe retrieved best offer is at the NBO. If the retrieved best offer isat the NBO, then the process continues to step 622, where it checks ifthe retrieved best offer is on or off the market center 20. If theretrieved best offer is on the market center 20, then the processcontinues to step 624, where if the retrieved best offer is a marketmaker quote, the process automatically generates an IOC sellpseudo-order on behalf of the underlying market maker quote. The processcontinues to step 626, where it matches the incoming NOW buy orderagainst the retrieved sell order or pseudo-order, at the NBO price. Ifthe matched sell order is a pseudo-order, then in step 628, the processnotifies the market maker quote engine 32 b of the quantity that wasexecuted so that the market maker quote engine 32 b can decrement theunderlying market maker quote.

The process continues to step 630, where it checks if the incoming NOWbuy order still has quantity available to trade. If it does not, thenthe process continues to step 642, where it terminates as indicated. If,however, the incoming NOW buy order does still have remaining quantity,then the process returns to step 616, where it retrieves the next-bestoffer in the virtual consolidated order and quote list and continues tostep 618, where it checks if the incoming NOW buy order is stillmarketable. The process continues to execute the incoming NOW buy orderagainst all resident trading interest at the NBO as described above,until the incoming NOW buy order is depleted, or else until theretrieved best offer is an away market quote, as described next.

Returning to step 622, if the retrieved best offer is an away marketquote, then in step 632, the Routing Process ranks all the away marketsat the NBO according to the business rules of the market center 20. Instep 634, the Routing Process retrieves the “NOW-eligible” parameter forthe highest-ranking away market. In step 636, it checks if thehighest-ranking away market is NOW-eligible or not. If thehighest-ranking away market is eligible to receive orders routed onbehalf of underlying NOW orders, then in step 638, the Routing Processroutes to the away market as appropriate, up to its disseminated offersize, at the NBO price. After routing to the highest-ranking awaymarket, the process continues to step 640, where it checks if theincoming NOW buy order still has quantity available to trade. If theorder is depleted, then the process terminates in step 642 as indicated.

If, however, the incoming NOW buy order still has remaining quantity,then it continues to step 644, where it checks if there are anyadditional away markets offering at the NBO. If there are, then theprocess continues to step 646, where it retrieves the next-highestranking away market at the NBO. The process then returns to step 634,where it retrieves the NOW-eligible parameter for the next-highestranking away market. If this away market is also eligible to receive NOWorders, then the process routes to it as described in step 638 above.The process continues until the incoming NOW buy order is depleted, orelse until there are no additional NOW-eligible away markets at the NBO.

Returning to step 636, if the away market being evaluated is noteligible to receive NOW orders, then the process continues to step 644,where it checks if there are any additional away markets offering at theNBO.

Returning to step 644, if there are no additional away markets at theNBO, then the process continues to step 648, where it cancels theremaining quantity of the incoming NOW buy order. The process thenterminates in step 650 as indicated.

Returning to step 604, if the incoming NOW buy order is not marketablewhen it is first received, then the process continues to step 648, whereit cancels the incoming NOW buy order and terminates in step 650.

Returning to step 618, if the incoming NOW buy order's price is nolonger greater than or equal to the retrieved best offer in the virtualconsolidated order and quote list, then the process also continues tostep 648, where it cancels the remainder of the incoming NOW buy orderand terminates in step 650.

Returning to step 620, if the retrieved best offer in the virtualconsolidated order and quote list is not at the NBO, then the processalso continues to step 648, where it cancels the remainder of theincoming NOW buy order and terminates in step 650.

Incoming NOW Sell Order Received Process

Referring now to FIGS. 7A-7B, the process is illustrated where the ordermatching engine 21 receives an incoming NOW sell order. This routine isvery similar to the process described above in FIGS. 6A-6B for receivingan incoming NOW buy order.

In step 702, the process retrieves the NBB, and in step 704, the processdetermines if the incoming NOW sell order is marketable. If the processdetermines that the incoming NOW sell order is marketable, then theprocess continues to step 706, where it creates a virtual consolidatedorder and quote list for the option series.

The process continues to step 708, where it checks if the option serieshas any assigned market makers. If it does, then the process continuesto step 710, where it checks if the incoming NOW sell order is adirected order or not. If the incoming NOW sell order is a directedorder, then the process continues to step 714 where the “Directed OrderProcess” is initiated in step 2000 in FIG. 20A. If, however, theincoming NOW sell order is not a directed order, then the processproceeds to step 712 where the “LMM Guaranteed Bid Process” is initiatedinstead in step 1800 in FIG. 18.

Regardless of whether the incoming NOW sell order executes in theDirected Order Process, in the LMM Guaranteed Bid Process, or in neitherprocess (if the applicable market maker is not quoting at the NBB and istherefore ineligible for a guaranteed entitlement, or else if the issuedoes not have any assigned market makers), if the incoming NOW sellorder still has quantity available to trade, then the process continuesto step 716, where it retrieves the best bid in the virtual consolidatedorder and quote list, i.e., the buy order, market maker quote, ordisseminated away market quote with the highest ranking. In step 718,the process checks if the incoming NOW sell order is still marketable(by way of explanation, it is possible that it is no longer marketableif the quotes and orders at the NBB were exhausted).

At step 718, if the process determines that the incoming NOW sell orderis still marketable, then it continues to step 720, where it checks ifthe retrieved best bid is at the NBB. If the retrieved best bid is atthe NBB, then the process continues to step 722, where it checks if theretrieved best bid is on or off the market center 20. If the retrievedbest bid is on the market center 20, then the process continues to step724, where if the retrieved best bid is a market maker quote, theprocess automatically generates an IOC buy pseudo-order on behalf of theunderlying market maker quote. The process continues to step 726, whereit matches the incoming NOW sell order against the retrieved buy orderor pseudo-order, at the NBB price. If the matched buy order is apseudo-order, then in step 728, the process notifies the market makerquote engine 32 b of the quantity that was executed so that the marketmaker quote engine 32 b can decrement the underlying market maker quote.

The process continues to step 730, where it checks if the incoming NOWsell order still has quantity available to trade. If it does not, thenthe process continues to step 742, where it terminates as indicated. If,however, the incoming NOW sell order does still have remaining quantity,then the process returns to step 716, where it retrieves the next-bestbid in the virtual consolidated order and quote list and continues tostep 718, where it checks if the incoming NOW sell order is stillmarketable. The process continues to execute the incoming NOW sell orderagainst all resident trading interest at the NBB as described above,until the incoming NOW sell order is depleted, or else until theretrieved best bid is an away market quote, as described next.

Returning to step 722, if the retrieved best bid is an away marketquote, then in step 732, the Routing Process ranks all the away marketsat the NBB according to the business rules of the market center 20. Instep 734, the Routing Process retrieves the “NOW-eligible” parameter forthe highest-ranking away market. In step 736, it checks if thehighest-ranking away market is NOW-eligible or not. If thehighest-ranking away market is eligible to receive orders routed onbehalf of underlying NOW orders, then in step 738, the Routing Processroutes to the away market as appropriate, up to its disseminated bidsize, at the NI313 price. After routing to the highest-ranking awaymarket, the process continues to step 740, where it checks if theincoming NOW sell order still has quantity available to trade. If theorder is depleted, then the process terminates in step 742 as indicated.

If, however, the incoming NOW sell order still has remaining quantity,then it continues to step 744, where it checks if there are anyadditional away markets bidding at the NBB. If there are, then theprocess continues to step 746, where it retrieves the next-highestranking away market at the NBB. The process then returns to step 734,where it retrieves the NOW-eligible parameter for the next-highestranking away market. If this away market is also eligible to receive NOWorders, then the process routes to it as described in step 738 above.The process continues until the incoming NOW sell order is depleted, orelse until there are no additional NOW-eligible away markets at the NBB.

Returning to step 736, if the away market being evaluated is noteligible to receive NOW orders, then the process continues to step 744,where it checks if there are any additional away markets bidding at theNBB.

Returning to step 744, if there are no additional away markets at theNBB, then the process continues to step 748, where it cancels theremaining quantity of the incoming NOW sell order. The process thenterminates in step 750 as indicated.

Returning to step 704, if the incoming NOW sell order is not marketablewhen it is first received, then the process continues to step 748, whereit cancels the incoming NOW sell order and terminates in step 750.

Returning to step 718, if the incoming NOW sell order's price is nolonger less than or equal to the retrieved best bid in the virtualconsolidated order and quote list, then the process also continues tostep 748, where it cancels the remainder of the incoming NOW sell orderand terminates in step 750.

Returning to step 720, if the retrieved best bid in the virtualconsolidated order and quote list is not at the NBB, then the processalso continues to step 748, where it cancels the remainder of theincoming NOW sell order and terminates in step 750.

NOW Order Trading Example

In this example, the issue has an assigned lead market maker (LMM) thatis quoting at the NBO when a marketable incoming NOW buy order isreceived. The NOW buy order executes in the LMM Guaranteed Offer Processand the Display Order Process and then routes to an away market at theNBO that is eligible to receive NOW orders. A higher-ranking away marketat the NBO that is not eligible to receive NOW orders is bypassed. Afterrouting to the NOW-eligible away market, the remaining quantity of theNOW order is canceled immediately. The NOW-eligible away market fills aportion of the routed order and declines a portion. The declined portionis canceled immediately.

The NBBO is 2.50 to 2.60 (70×150).

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60Away Market B: Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.60 Away MarketA: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.65 Away Market D: Bid 20 @2.40 Away Market D: Offer 20 @ 2.70

The market maker quote book 33 a looks like this:

Bids Offers MM2: Bid 30 @ 2.50 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45MM2: Offer 30 @ 2.70

The internal order book 29 a looks like this. Order D is on behalf of acustomer, whereas Order E is not:

Bids Offers Order A: Buy 10 @ 2.50 Order D: Sell 10 @ 2.60 Order B: Buy10 @ 2.40 Order E: Sell 10 @ 2.60 Order C: Buy 10 @ 2.35 Order F: Sell10 @ 2.65The market center BBO is 2.50 to 2.60 (40×60)

The public order book looks like this:

Bids Offers 40 @ 2.50 60 @ 2.60 40 @ 2.45 10 @ 2.65 10 @ 2.40 30 @ 2.7010 @ 2.35Incoming Marketable NOW Buy Order is Received

In step 600, the order matching engine 21 receives the following order:

Order L: Buy 150 @ 2.65, NOW

In step 602, the process retrieves the NBO (2.60). In step 604, theprocess checks if incoming Buy Order L is marketable, i.e., is priced ator better than the NBO. As it is, the process continues to step 606,where it combines the away market BBO book 25 a, the market maker quotebook 33 a, and the internal order book 29 a together in a virtualconsolidated order and quote list. In this example, Sell Orders D and Ewere received before the LMM Offer was quoted.

The virtual consolidated order and quote list looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Order D: Sell 10 @ 2.60 Order A: Buy 10 @2.50 Order E: Sell 10 @ 2.60 Away Market C: Bid 30 @ 2.50 LMM: Offer 40@ 2.60 LMM: Bid 40 @ 2.45 Away Market A: Offer 50 @ 2.60 Away Market B:Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.60 Order B: Buy 10 @ 2.40Order F: Sell 10 @ 2.65 Away Market A: Bid 50 @ 2.40 Away Market C:Offer 30 @ 2.65 Away Market D: Bid 20 @ 2.40 MM2: Offer 30 @ 2.70 OrderC: Buy 10 @ 2.35 Away Market D: Offer 20 @ 2.70

The process continues to step 608, where it checks if this issue has anyassigned market makers. As it does, the process continues to step 610,where it checks if incoming Buy Order L is a directed order or not. Asit is not a directed order, the process continues to step 612, where itinitiates the “LMM Guaranteed Offer Process,” and proceeds to step 1900in FIG. 19.

LMM Guarantee Process is in Effect for this Issue

In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In step1904, it checks if the LMM Offer is at the NBO (2.60). As it is, thelead market maker is entitled to guaranteed participation with incomingBuy Order L, after any superior displayed customer orders are executedfirst. The process continues to step 1908, where it checks if incomingBuy Order L's order size (150) is greater than two contracts. As it is,the process continues to step 1914.

Incoming NOW Buy Order Matches the Displayed Customer Sell Order withTime Priority Over the LMM Offer

In step 1914, the process checks if there are any customer sell ordersdisplayed at the NBO, and finds posted Sell Order D. The processcontinues to step 1916, where it stores the timestamp on the LMM Offerin the parameter “LMMOfferTimestamp.” In step 1918, the processretrieves the earliest displayed customer sell order at the NBO, SellOrder D, and in step 1920, the process compares the timestamp of postedSell Order D to the LMMOfferTimestamp. As posted Sell Order D wasreceived earlier than the LMM Offer, the process continues to step 1922,where it matches 10 contracts of incoming Buy Order L with posted SellOrder D, completely depleting posted Sell Order D and removing it fromthe books.

The process continues to step 1924, where it checks if incoming BuyOrder L still has quantity available to trade. As it still has 140contracts remaining, the process continues to step 1928, where it checksif there are any additional customer sell orders at the NBO. As thereare none (Sell Order E is not on behalf of a customer), the processcontinues to step 1932.

Incoming NOW Buy Order Matches the LMM Offer

In step 1932, the process retrieves the LMMGuaranteedPercent parameter,which is configured to 40% in this example. In step 1934, the processderives the LMMGuaranteedAllocation (56 contracts) by multiplying theLMMGuaranteedPercent (40%) by the remaining portion of incoming BuyOrder L (140 contracts). The LMMGuaranteedAllocation is the maximumquantity of contracts that can execute in the LMM Guarantee Process.

In step 1938, the process matches 40 contracts of incoming Buy Order Lagainst the LMM Offer, the lesser of the LMMGuaranteedAllocation (56contracts) and the LMM Offer size (40 contracts), at the NBO price of2.60. It does this by generating an IOC pseudo-order to Sell 40® 2.60 onbehalf of the LMM Offer, and executing incoming Buy Order L against thesell pseudo-order. The LMM Offer at 2.60 is completely depleted, and isremoved from the virtual consolidated order and quote list. The processnotifies the market maker quote engine 32 b to decrement the LMM Offerby the 40 contracts executed. The LMM Guaranteed Offer Process hascompleted.

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Order E: Sell 10 @ 2.60 Order A: Buy 10 @2.50 Away Market A: Offer 50 @ 2.60 Away Market C: Bid 30 @ 2.50 AwayMarket B: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45 Order F: Sell 10 @ 2.65Away Market B: Bid 40 @ 2.45 Away Market C: Offer 30 @ 2.65 Order B: Buy10 @ 2.40 MM2: Offer 30 @ 2.70 Away Market A: Bid 50 @ 2.40 Away MarketD: Offer 20 @ 2.70 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The market maker quote engine 32 b decrements the LMM Offer by the 40contracts executed, completely depleting it. The market maker quote book33 a now looks like this (the LMM will manually replenish its offer, butthis is not illustrated to simplify the example):

Bids Offers MM2: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70 LMM: Bid 40 @ 2.45

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order E: Sell 10 @ 2.60 Order B: Buy10 @ 2.40 Order F: Sell 10 @ 2.65 Order C: Buy 10 @ 2.35The market center BBO is now 2.50 to 2.60 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.50 10 @ 2.60 ← 40 @ 2.45 10 @ 2.65 10 @ 2.40 30 @2.70 10 @ 2.35

The process continues to step 1942, where it checks if incoming BuyOrder L still has any quantity available to trade. As it still has 100contracts remaining, the process continues to step 1946, where itreturns to the step where the routine was originally invoked, back tostep 612 of FIG. 6A.

Incoming NOW Buy Order Matches the Non-Customer Sell Order

The process continues to step 616, where it retrieves the best offer inthe virtual consolidated order and quote list, which is posted SellOrder E. In step 618, the process checks if incoming Buy Order L's price(2.65) is greater than or equal to posted Sell Order E's price (2.60).As incoming Buy Order L's price is higher, the process continues to step620, where it checks if posted Sell Order E's price (2.60) is at the NBO(2.60). As Sell Order E is at the NBO, the process continues to step622, where it checks if posted Sell Order E is on or off the marketcenter 20. As it is a resident book order, the process bypasses step 624and continues to step 626, where it matches 10 contracts of incoming BuyOrder L against posted Sell Order E, at the NBO price of 2.60. PostedSell Order E is completely depleted and is removed from the books.

The NBBO is now 2.50 to 2.60 (70×90)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60 Order A:Buy 10 @ 2.50 Away Market B: Offer 40 @ 2.60 Away Market C: Bid 30 @2.50 Order F: Sell 10 @ 2.65 LMM: Bid 40 @ 2.45 Away Market C: Offer 30@ 2.65 Away Market B: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Order B: Buy 10@ 2.40 Away Market D: Offer 20 @ 2.70 Away Market A: Bid 50 @ 2.40 AwayMarket D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Order B: Buy10 @ 2.40 Order C: Buy 10 @ 2.35The market center BBO is now 2.50 to 2.65 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.50 10 @ 2.65 ← 40 @ 2.45 30 @ 2.70 10 @ 2.40 10 @2.35

The process bypasses step 628 and continues to step 630, where it checksif incoming Buy Order L still has any quantity available to trade. As itstill has 90 contracts remaining, the process returns to step 616 andretrieves the best offer in the virtual consolidated order and quotelist, which is Away Market A's offer. In step 618, the process checks ifincoming Buy Order L's price (2.65) is greater than or equal to AwayMarket A's offer (2.60). As incoming Buy Order L's price is higher, theprocess continues to step 620, where it checks if Away Market A's offer(2.60) is at the NBO (2.60). As it is indeed at the NBO, the processcontinues to step 622, where it checks if Away Market A's offer is on oroff the market center 20. As it is an away market quote, the processcontinues to step 632.

Highest-Ranking Away Market is not Eligible to Receive NOW Orders

In step 632, the Routing Process determines that Away Market A has ahigher priority for routing than Away Market B. In step 634, itretrieves the “NOW-eligible” parameter for Away Market A from theRouting Process. In step 636, it determines that Away Market A is noteligible to receive routed NOW orders. Accordingly, the processcontinues to step 644, where it checks if there are additional awaymarkets offering at the NBO.

Incoming NOW Buy Order Routes to the Best Away Market Eligible toReceive NOW Orders

As Away Market B is also offering at the NBO, the process continues tostep 646, where it retrieves Away Market B's offer. The process returnsto step 634, where it retrieves the “NOW-eligible” parameter for AwayMarket B. In step 636, it determines that Away Market B is indeedeligible to receive routed NOW orders. The process continues to step638. As no prior orders have been routed to Away Market B in thisexample, the process satisfies its full disseminated offer size byrouting 40 contracts to Away Market B, at the NBO price of 2.60.

After routing to Away Market B, the process continues to step 640, whereit checks if incoming Buy Order L has any quantity still available totrade. As it still has 50 contracts remaining, the process continues tostep 644, where it checks if there are any additional away markets atthe NBO (2.60). As there are none, the process continues to step 648.

Remainder of the Incoming NOW Buy Order is Canceled Immediately

In step 648, the process cancels the remaining 50 contracts of incomingBuy Order L. The process terminates in step 650 as indicated.

Away Market Partially Fills the Routed Order: Declined Quantity isCanceled Immediately

Away Market B fills 30 contracts and declines 10 contracts

According to the business rules for NOW orders, if an away marketdeclines any portion of an order that is routed on behalf of anunderlying NOW order, the declined quantity is canceled immediately. Theprocess does not attempt to match or route the declined quantity. Thevirtual consolidated order and quote list is deleted from local memory.

Reprice-And-Ship Inside Limit Orders

A reprice-and-ship inside limit order is capped at the inside price, andwill not execute at a price that is inferior to the NBBO. Accordingly,it can route to away markets only if they are quoting at the NBBO, andany remaining quantity cannot route to the next-best price level untilall the quotes at the current NBBO are exhausted. For example, areprice-and-ship inside limit order sell order that is priced at orbetter than the NBB would execute in the sequence shown below:

Bid Side of the Virtual Consolidated Order and Quote List Price DisplayOrder Routing Point Process Working Order Process Process Highest 1.Displayed 2. Reserve 3. Passive 4. Discretionary 5. Tracking 6. Awayprice orders and order Liquidity orders that can Liquidity Market (NBB)quotes at the quantity at the Orders at the step up to the Orders at theBids at the NBB NBB NBB NBB NBB NBB

An incoming reprice-and-ship inside limit order that cannot execute whenit is received is immediately posted. The nonmarketable reprice-and-shipinside limit order is inserted in the internal order book 29 a andranked according to price/time priority in the Display Order Process.The order is also disseminated to the public order book. Posted customerreprice-and-ship inside limit orders that are priced at the NBBO areeligible to execute against incoming marketable orders in the LMMGuarantee Process or the Directed Order Process, like any otherdisplayed order type, if they have time priority over the eligiblemarket maker quote.

An incoming reprice-and-ship inside limit order that is marketable atthe opposite side of the NBBO will participate in the LMM GuaranteeProcess if the lead market maker is quoting at the opposite side of theNBBO. Similarly, if the business rules of the market center 20 allowreprice-and-ship inside limit orders to be directed to a specific marketmaker, then an incoming reprice-and-ship inside limit order that ismarketable at the opposite side of the NBBO will participate in theDirected Order Process if the designated market maker is quoting at theopposite side of the NBBO.

Once an incoming reprice-and-ship inside limit order executes allresident interest and routes to all away markets quoting at the NBBO,then the process must determine how to handle any excess quantity. If areprice-and-ship inside limit order's price would cross the NBBO if itwere to be posted, it is automatically repriced at the NBBO before it isposted, i.e., the order will lock the market but it will not cross themarket. Once posted, a reprice-and-ship inside limit order does NOTstand its ground if it is locked or crossed by an away market 24, androutes instead. As long as an away market 24 completely fills allcontracts routed to it, remains at the NBBO, and remains marketableagainst the posted reprice-and-ship inside limit order, then additionalcontracts will continue to be routed to it until the posted order isdepleted.

If an away market center 24 disseminates a new quote that crosses theprice of the posted reprice-and-ship inside limit order, then theprocess reprices the posted reprice-and-ship inside limit order at thenew NBBO price while contemporaneously routing to the away market center24. Accordingly, in this embodiment, a posted reprice-and-ship insidelimit order may be automatically repriced less aggressively, but it willnot be automatically repriced more aggressively. If a postedreprice-and-ship inside limit order is repriced, it loses its standingin the internal order book 29 a and is processed as if it were a new,incoming order.

Before routing to the away market center 24 that locked or crossed theposted reprice-and-ship inside limit order, the process first attemptsto execute the repriced order in the LMM Guarantee Process, the DisplayOrder Process, and the Working Order Process if possible. The processcontinues to ship to all away markets at the NBBO, repricing the orderless aggressively away from any crossing markets, until thereprice-and-ship inside limit order is depleted or until the awaymarkets decline the routed orders.

Incoming Reprice-And-Ship Inside Limit Buy Order Received Process

Referring now to FIGS. 8A-8B, the process is illustrated where the ordermatching engine 21 receives an incoming “Reprice-and-Ship” inside limitbuy order. In this embodiment, a reprice-and-ship inside limit buy orderis automatically capped (repriced) at the NBO whenever its price crossesthe NBO, even when the cross is initiated by an away market center 24.Instead of standing its ground, the posted order ships to the awaymarket that locked or crossed it, and continues to ship additionalquantity as long as the away market continues to fill the routed ordersand remains at the NBO.

In step 802, the process retrieves the NBO, and in step 804, the processdetermines if the incoming reprice-and-ship inside limit buy order ismarketable. If the process determines that the incoming reprice-and-shipinside limit buy order is marketable, then the process continues to step806, where it creates a virtual consolidated order and quote list forthe option series.

The process continues to step 808, where it checks if the option serieshas any assigned market makers. If it does, then the process continuesto step 810, where it checks if the incoming reprice-and-ship insidelimit buy order is a directed order or not. If the incomingreprice-and-ship inside limit buy order is a directed order, then theprocess continues to step 814 where the “Directed Order Process” isinitiated in step 2000 in FIG. 20A. If, however, the incomingreprice-and-ship inside limit buy order is not a directed order, thenthe process proceeds to step 812 where the “LMM Guaranteed OfferProcess” is initiated instead in step 1900 in FIG. 19.

Regardless of whether the incoming reprice-and-ship inside limit buyorder executes in the Directed Order Process, in the LMM GuaranteedOffer Process, or in neither process (if the applicable market maker isnot quoting at the NBO and is therefore ineligible for a guaranteedentitlement, or else if the issue does not have any assigned marketmakers), if the incoming reprice-and-ship inside limit buy order stillhas quantity available to trade, then the process continues to step 816,where it retrieves the best offer in the virtual consolidated order andquote list, i.e., the sell order, market maker quote, or disseminatedaway market quote with the highest ranking. In step 818, the processchecks if the incoming reprice-and-ship inside limit buy order is stillmarketable (by way of explanation, it is possible that it is no longermarketable if the quotes and orders at the NBO were exhausted).

If at step 818 the process determines that the incoming reprice-and-shipinside limit buy order is still marketable, then it continues to step820, where it checks if the retrieved best offer is at the NBO. If theretrieved best offer is at the NBO, then the process continues to step822, where it checks if the retrieved best offer is on or off the marketcenter 20. If the retrieved best offer is on the market center 20, thenthe process continues to step 826, where if the retrieved best offer isa market maker quote, the process automatically generates an IOC sellpseudo-order on behalf of the underlying market maker quote. The processcontinues to step 828, where it matches the incoming reprice-and-shipinside limit buy order against the retrieved sell order or the generatedsell pseudo-order, at the NBO price. If the matched sell order is apseudo-order, then in step 830, the process notifies the market makerquote engine 32 b of the quantity that was executed so that the marketmaker quote engine 32 b can decrement the underlying market maker quote.

The process continues to step 832, where it checks if the incomingreprice-and-ship inside limit buy order still has quantity available totrade. If it does not, then the process continues to step 842, where itterminates as indicated. If, however, the incoming reprice-and-shipinside limit buy order does still have remaining quantity, then theprocess returns to step 816, where it retrieves the next-best offer inthe virtual consolidated order and quote list and continues to step 818,where it checks if the incoming reprice-and-ship inside limit buy orderis still marketable. The process continues to execute the incomingreprice-and-ship inside limit buy order against all resident tradinginterest at the NBO as described above, until the incomingreprice-and-ship inside limit buy order is depleted, or else until theretrieved best offer is an away market quote, as described next.

Returning to step 822, if the retrieved best offer is an away marketquote, then in step 824, the process releases the incomingreprice-and-ship inside limit buy order to the Routing Process, whichroutes to the highest-ranking away market as appropriate, up to itsdisseminated offer size, at the NBO price. After routing to the awaymarket, the process continues to step 832, where it checks if theincoming reprice-and-ship inside limit buy order still has quantityavailable to trade. If the order is depleted, then the processterminates instep 842 as indicated. If, however, the order still hasremaining quantity, then the process returns to step 816, where itretrieves the next best offer, and if the retrieved best offer is at theNBO, routes to the next-highest ranking away market according to thesteps just described.

Returning to step 820, if, however, the retrieved best offer is not atthe NBO, then the incoming order can execute no further, and the processcontinues to step 834 instead. In step 834, the process caps theincoming reprice-and-ship inside limit buy order's price at the NBO sothat it locks, but does not cross, the market. The process thencontinues to step 836, where it ranks the capped order in the DisplayOrder Process of the internal order book 29 a according to theprice/time priority of its capped price (the NBO). The process alsodisseminates the order to the public order book at its capped (NBO)price.

As indicated at step 838, while the reprice-and-ship inside limit buyorder is posted, if an away market disseminates an offer whose pricecrosses the posted reprice-and-ship inside limit buy order's price, thenthe quote engine 23 a notifies the order matching engine 21 of thecross. The process reprices the capped reprice-and-ship inside limit buyorder less aggressively at the new NBO price. The repriced order losesits standing in the order book 29 a, and is processed as if it were anew incoming order, but at the capped NBO price. The process returns tostep 802 and attempts to execute the repriced buy order in the LMMGuarantee Offer Process, the Display Order Process, and the WorkingOrder Process as described above in steps 802 through 822 before routingto the away market 24 that crossed the order and caused it to reprice.The process routes to the away market in step 824, up to the lesser ofthe away market's disseminated offer size and the remaining quantity ofthe reprice-and-ship inside limit buy order, at the new NBO price. Anyremaining portion of the order is re-ranked in price/time priorityaccording to its new N130 price in step 836.

As indicated at step 839, while the reprice-and-ship inside limit buyorder is posted, if an away market disseminates an offer whose pricelocks the posted reprice-and-ship inside limit buy order's price, thenthe quote engine 23 a notifies the order matching engine 21 of the lock.As the order does not need to be repriced, it could keep its standing inthe internal order book 29 a. However, to allow the order to executefurther, the process pulls the posted reprice-and-ship inside limit buyorder from the order book 29 a, and treats it as if it were a newincoming order. The process returns to step 802 and attempts to executethe buy order in the LMM Guaranteed Offer Process, the Display OrderProcess, and the Working Order Process as described above in steps 802through 822 before routing to the away market 24 that locked the order.The process routes to the away market in step 824, up to the lesser ofthe away market's disseminated offer size and the remaining quantity ofthe reprice-and-ship inside limit buy order. Any remaining portion ofthe reprice-and-ship inside limit buy order is re-ranked in price/timepriority in step 836.

As indicated at step 840, whenever an away market fills the fullquantity of an order routed on behalf of the posted reprice-and-shipinside limit buy order, the process ships additional quantity to theaway market, up to its disseminated offer size, if the away market andthe posted reprice-and-ship inside limit buy order are both still pricedat the NBO. The process continues to route additional quantity to theaway market as long as the away market continues to fill the routedorders, even if the away market does not update its disseminated offer.The process then terminates in step 842 as indicated.

Returning to step 804, if the incoming reprice-and-ship inside limit buyorder was never marketable, then the process continues to steps 836through 842 as described above.

Returning to step 818, if the incoming reprice-and-ship inside limit buyorder is no longer marketable, then the process continues to steps 836through 842 as described above.

Incoming Reprice-And-Ship Inside Limit Sell Order Received Process

Referring now to FIGS. 9A-9B, the process is illustrated where the ordermatching engine 21 receives an incoming reprice-and-ship inside limitsell order. This routine is very similar to the process described abovein FIGS. 8A-8B for receiving an incoming reprice-and-ship inside limitorder buy order.

In step 902, the process retrieves the NBB, and in step 904, the processdetermines if the incoming reprice-and-ship inside, limit sell order ismarketable. If the process determines that the incoming reprice-and-shipinside limit sell order is marketable, then the process continues tostep 906, where it creates a virtual consolidated order and quote listfor the option series.

The process continues to step 908, where it checks if the option serieshas any assigned market makers. If it does, then the process continuesto step 910, where it checks if the incoming reprice-and-ship insidelimit sell order is a directed order or not. If the incomingreprice-and-ship inside limit sell order is a directed order, then theprocess continues to step 914 where the “Directed Order Process” isinitiated in step 2000 in FIG. 20A. If, however, the incomingreprice-and-ship inside limit sell order is not a directed order, thenthe process proceeds to step 912 where the “LMM Guaranteed Bid Process”is initiated instead in step 1800 in FIG. 18.

Regardless of whether the incoming reprice-and-ship inside limit sellorder executes in the Directed Order Process, in the LMM Guaranteed BidProcess, or in neither process (if the applicable market maker is notquoting at the NBB and is therefore ineligible for a guaranteedentitlement, or else if the issue does not have any assigned marketmakers), if the incoming reprice-and-ship inside limit sell order stillhas quantity available to trade, then the process continues to step 916,where it retrieves the best bid in the virtual consolidated order andquote list, i.e., the buy order, market maker quote, or disseminatedaway market quote with the highest ranking. In step 918, the processchecks if the incoming reprice-and-ship inside limit sell order is stillmarketable (by way of explanation, it is possible that it is no longermarketable if the quotes and orders at the NBB were exhausted).

If at step 918 the process determines that the incoming reprice-and-shipinside limit sell order is still marketable, then it continues to step920, where it checks if the retrieved best bid is at the NBB. If theretrieved best bid is at the NBB, then the process continues to step922, where it checks if the retrieved best bid is on or off the marketcenter 20. If the retrieved best bid is on the market center 20, thenthe process continues to step 926, where if the retrieved best bid is amarket maker quote, the process automatically generates an IOC buypseudo-order on behalf of the underlying market maker quote. The processcontinues to step 928, where it matches the incoming reprice-and-shipinside limit sell order against the retrieved buy order or the generatedbuy pseudo-order, at the NBB price. If the matched buy order is apseudo-order, then in step 930, the process notifies the market makerquote engine 32 b of the quantity that was executed so that the marketmaker quote engine 32 b can decrement the underlying market maker quote.

The process continues to step 932, where it checks if the incomingreprice-and-ship inside limit sell order still has quantity available totrade. If it does not, then the process continues to step 942, where itterminates as indicated. If, however, the incoming reprice-and-shipinside limit sell order does still have remaining quantity, then theprocess returns to step 916, where it retrieves the next-best bid in thevirtual consolidated order and quote list and continues to step 918,where it checks if the incoming reprice-and-ship inside limit sell orderis still marketable. The process continues to execute the incomingreprice-and-ship inside limit sell order against all resident tradinginterest at the NBB as described above, until the incomingreprice-and-ship inside limit sell order is depleted, or else until theretrieved best bid is an away market quote, as described next.

Returning to step 922, if the retrieved best bid is an away marketquote, then in step 924, the process releases the incomingreprice-and-ship inside limit sell order to the Routing Process, whichroutes to the highest-ranking away market as appropriate, up to itsdisseminated Bid size, at the NBB price. After routing to the awaymarket, the process continues to step 932, where it checks if theincoming reprice-and-ship inside limit sell order still has quantityavailable to trade. If the order is depleted, then the processterminates in step 942 as indicated. If, however, the order still hasremaining quantity, then the process returns to step 916, where itretrieves the next best bid, and if the retrieved best bid is at theNBB, routes to the next-highest ranking ‘away market according to thesteps just described.

Returning to step 920, if, however, the retrieved best bid is not at theNBB, then the incoming order can execute no further, and the processcontinues to step 934 instead. In step 934, the process caps theincoming reprice-and-ship inside limit sell order's price at the NBB sothat it locks, but does not cross, the market. The process thencontinues to step 936, where it ranks the capped order in the DisplayOrder Process of the internal order book 29 a according to theprice/time priority of its capped price (the NBB). The process alsodisseminates the order to the public order book at its capped (NBB)price.

As indicated at step 938, while the reprice-and-ship inside limit sellorder is posted, if an away market disseminates a bid whose pricecrosses the posted reprice-and-ship inside limit sell order's price,then the quote engine 23 a notifies the order matching engine 21 of thecross. The process reprices the capped reprice-and-ship inside limitsell order less aggressively at the new NBB price. The repriced orderloses its standing in the internal order book 29 a, and is processed asif it were a new incoming order, but at the capped NBB price. Theprocess returns to step 902 and attempts to execute the repriced sellorder in the LMM Guarantee Bid Process, the Display Order Process, andthe Working Order Process as described above in steps 902 through 922before routing to the away market that crossed the order and caused itto reprice. The process routes to the away market in step 924, up to thelesser of the away market's disseminated Bid size and the remainingquantity of the reprice-and-ship inside limit sell order, at the new NBBprice. Any remaining portion of the order is re-ranked in price/timepriority according to its new NBB price in step 936.

As indicated at step 939, while the reprice-and-ship inside limit sellorder is posted, if an away market disseminates a bid whose price locksthe posted reprice-and-ship inside limit sell order's price, then thequote engine 23 a notifies the order matching engine 21 of the lock. Asthe order does not need to be repriced, it could keep its standing inthe internal order book 29 a. However, to allow the order to executefurther, the process pulls the posted reprice-and-ship inside limit sellorder from the order book 29 a, and treats it as if it were a newincoming order. The process returns to step 902 and attempts to executethe sell order in the LMM Guaranteed Bid Process, the Display OrderProcess, and the Working Order Process as described above in steps 902through 922 before routing to the away market 24 that locked the order.The process routes to the away market in step 924, up to the lesser ofthe away market's disseminated bid size and the remaining quantity ofthe reprice-and-ship inside limit sell order. Any remaining portion ofthe reprice-and-ship inside limit sell order is re-ranked in price/timepriority in step 936.

As indicated at step 940, whenever an away market fills the fullquantity of an order routed on behalf of the posted reprice-and-shipinside limit sell order, the process ships additional quantity to theaway market, up to its disseminated Bid size, if the away market and theposted reprice-and-ship inside limit sell order are both still priced atthe NBB. The process continues to route additional quantity to the awaymarket as long as the away market continues to fill the routed orders,even if the away market does not update its disseminated bid. Theprocess then terminates in step 942 as indicated.

Returning to step 904, if the incoming reprice-and-ship inside limitsell order was never marketable, then the process continues to steps 936through 942 as described above.

Returning to step 918, if the incoming reprice-and-ship inside limitsell order is no longer marketable, then the process continues to steps936 through 942 as described above.

Reprice-And-Ship Inside Limit Order Trading Example

In this example, the issue has an assigned lead market maker (LMM) thatis quoting at the NBO when a marketable incoming reprice-and-ship insidelimit buy order is received. The reprice-and-ship inside limit buy orderexecutes in the LMM Guaranteed Offer Process and the Display OrderProcess and then routes to the away markets at the NBBO. After routingat the NBO, the order is repriced less aggressively so that it locks,but does not cross, the NBO. When an away market fills the order routedto it, the posted reprice-and-ship inside limit order routes additionalquantity to it. When an away market updates its offer price and the newoffer price crosses the price of the posted reprice-and-ship insidelimit order, the order is automatically repriced less aggressively onceagain so that it locks, but does not cross, the new NBO, and the postedorder routes to the away market. When the NBO moves away from the postedreprice-and-ship inside limit order, the order remains at its currentprice, and no additional quantity is routed.

The NBBO is 2.50 to 2.60 (70×150).

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60Away Market B: Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.60 Away MarketA: Bid 50 @ 2.40 Away Market C. Offer 30 @ 2.65 Away Market D: Bid 20 @2.40 Away Market D: Offer 20 @ 2.70

The market maker quote book 33 a looks like this:

Bids Offers MM2: Bid 30 @ 2.50 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45MM2: Offer 30 @ 2.70

The internal order book 29 a looks like this. Order D is on behalf of acustomer, whereas Order E is not:

Bids Offers Order A: Buy 10 @ 2.50 Order D: Sell 10 @ 2.60 Order B: Buy10 @ 2.40 Order E: Sell 10 @ 2.60 Order C: Buy 10 @ 2.35 Order F: Sell10 @ 2.65The market center BBO is 2.50 to 2.60 (40×60)

The public order book looks like this:

Bids Offers 40 @ 2.50 60 @ 2.60 40 @ 2.45 10 @ 2.65 10 @ 2.40 30 @ 2.7010 @ 2.35Incoming Marketable Reprice-And-Ship Inside Limit Buy Order is Received

In step 800, the order matching engine 21 receives the following order:

Order H: Buy 250 @ 2.65, Reprice-and-Ship Inside Limit

In step 802, the process retrieves the NBO (2.60). In step 804, theprocess checks if incoming Buy Order H is marketable, i.e., is priced ator better than the NBO. As it is, the process continues to step 806,where it combines the away market BBO book 25 a, the market maker quotebook 33 a, and the internal order book 29 a together in a virtualconsolidated order and quote list, which it ranks in price/display/timepriority, but with a preference for resident interest over away marketinterest at the same price level. In this example, Sell Orders D and Ewere received before the LMM Offer was quoted.

The virtual consolidated order and quote list looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Order D: Sell 10 @ 2.60 Order A: Buy 10 @2.50 Order E: Sell 10 @ 2.60 Away Market C: Bid 30 @ 2.50 LMM: Offer 40@ 2.60 LMM: Bid 40 @ 2.45 Away Market A: Offer 50 @ 2.60 Away Market B:Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.60 Order B: Buy 10 @ 2.40Order F: Sell 10 @ 2.65 Away Market A: Bid 50 @ 2.40 Away Market C:Offer 30 @ 2.65 Away Market D Bid 20 @ 2.40 MM2: Offer 30 @ 2.70 OrderC: Buy 10 @ 2.35 Away Market D: Offer 20 @ 2.70

The process continues to step 808, where it checks if this issue has anyassigned market makers. As it does, the process continues to step 810,where it checks if incoming Buy Order H is a directed order or not. Asit is not a directed order, the process continues to step 812, where itinitiates the “LMM Guaranteed Offer Process,” and proceeds to step 1900in FIG. 19.

LMM Guarantee Process is in Effect for this Issue

In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In step1904, it checks if the LMM Offer is at the NBO (2.60). As it is, thelead market maker is entitled to guaranteed participation with incomingBuy Order H, after any superior displayed customer orders are executedfirst. The process continues to step 1908, where it checks if incomingBuy Order H's order size (250) is greater than two contracts. As it is,the process continues to step 1914.

Incoming Reprice-And-Ship Inside Limit Buy Order Matches the DisplayedSell Order with Time Priority Over the LMM Offer

In step 1914, the process checks if there are any customer sell ordersdisplayed at the NBO, and finds posted Sell Order D. The processcontinues to step 1916, where it stores the timestamp on the LMM Offerin the parameter “LMMOfferTimestamp.” In step 1918, the processretrieves the earliest displayed customer sell order at the NBO, SellOrder D, and in step 1920, the process compares the timestamp of postedSell Order D to the LMMOfferTimestamp. As posted Sell Order D wasreceived earlier than the LMM Offer, the process continues to step 1922,where it matches 10 contracts of incoming Buy Order H with posted SellOrder D, completely depleting posted Sell Order D and removing it fromthe books.

The process continues to step 1924, where it checks if incoming BuyOrder H still has quantity available to trade. As it still has 240contracts remaining, the process continues to step 1928, where it checksif there are any additional customer sell orders at the NBO. As thereare none (Sell Order E is not on behalf of a customer), the processcontinues to step 1932

Incoming Reprice-And-Ship Inside Limit Buy Order Matches the LMM Offer

In step 1932, the process retrieves the LMMGuaranteedPercent parameter,which is configured to 40% in this example. In step 1934, the processderives the LMMGuaranteedAllocation (96 contracts) by multiplying theLMMGuaranteedPercent (40%) by the remaining portion of incoming BuyOrder H (240 contracts). The LMMGuaranteedAllocation is the maximumquantity of contracts that can execute in the LMM Guarantee Process.

In step 1938, the process matches 40 contracts of incoming Buy Order Hagainst the LMM Offer, the lesser of the LMMGuaranteedAllocation (96contracts) and the LMM Offer size (40 contracts), at the NBO price of2.60. It does this by generating an IOC pseudo-order to Sell 40 @ 2.60on behalf of the LMM Offer, and executing incoming Buy Order H againstthe sell pseudo-order. The LMM Offer at 2.60 is completely depleted, andis removed from the virtual consolidated order and quote list. Theprocess notifies the market maker quote engine 32 b to decrement the LMMOffer by the 40 contracts executed. The LMM Guaranteed Offer Process hascompleted.

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Order E: Sell 10 @ 2.60 Order A: Buy 10 @2.50 Away Market A: Offer 50 @ 2.60 Away Market C: Bid 30 @ 2.50 AwayMarket B: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45 Order F: Sell 10 @ 2.65Away Market B: Bid 40 @ 2.45 Away Market C: Offer 30 @ 2.65 Order B: Buy10 @ 2.40 MM2: Offer 30 @ 2.70 Away Market A: Bid 50 @ 2.40 Away MarketD: Offer 20 @ 2.70 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The market maker quote engine 32 b decrements the LMM Offer by the 40contracts executed, completely depleting it. The market maker quote book33 a now looks like this (the lead market maker will manually replenishits offer, but this is not illustrated to simplify the example):

Bids Offers MM2: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70 LMM: Bid 40 @ 2.45

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order E: Sell 10 @ 160 Order B: Buy10 @ 2.40 Order F: Sell 10 @ 2.65 Order C: Buy 10 @ 2.35The market center 13B0 is now 2.50 to 2.60 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.50 10 @ 2.60 ← 40 @ 2.45 10 @ 2.65 10 @ 40 30 @ 2.7010 @ 2.35

The process continues to step 1942, where it checks if incoming BuyOrder H still has any quantity available to trade. As it still has 200contracts remaining, the process continues to step 1946, where itreturns to the step where the routine was originally invoked, back tostep 812 of FIG. 8A.

Incoming Reprice-And-Ship Inside Limit Buy Order Matches theNon-Customer Sell Order

The process continues to step 816, where it retrieves the best offer inthe virtual consolidated order and quote list, which is posted SellOrder E. In step 818, the process checks if incoming Buy Order H's price(2.65) is greater than or equal to posted Sell Order E's price (2.60).As incoming Buy Order H's price is higher, the process continues to step820, where it checks if posted Sell Order E's price (2.60) is at the NBO(2.60). As Sell Order E is at the NBO, the process continues to step822, where it checks if posted Sell Order E is on or off the marketcenter 20. As it is a resident book order, the process bypasses step 826and continues to step 828, where it matches 10 contracts of incoming BuyOrder H against posted Sell Order E, at the NBO price of 2.60. PostedSell Order E is completely depleted and is removed from the books.

The NBBO is now 2.50 to 2.60 (70×90)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60 Order A:Buy 10 @ 2.50 Away Market B: Offer 40 @ 2.60 Away Market C: Bid 30 @2.50 Order F: Sell 10 @ 2.65 LMM: Bid 40 @ 2.45 Away Market C: Offer 30@ 2.65 Away Market B: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Order B: Buy 10@ 2.40 Away Market D: Offer 20 @ 2.70 Away Market A: Bid 50 @ 2.40 AwayMarket D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Order B: Buy10 @ 2.40 Order C: Buy 10 @ 2.35The market center BBO is now 2.50 to 2.65 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.50 10 @ 2.65 ← 40 @ 2.45 30 @ 2.70 10 @ 2.40 10 @2.35

The process bypasses step 830 and continues to step 832, where it checksif incoming Buy Order H still has any quantity available to trade. As itstill has 190 contracts remaining, the process returns to step 816 andretrieves the best offer in the virtual consolidated order and quotelist, which is Away Market A's offer. In step 818, the process checks ifincoming Buy Order H's price (2.65) is greater than or equal to AwayMarket A's offer (2.60). As incoming Buy Order H's price is higher, theprocess continues to step 820, where it checks if Away Market A's offer(2.60) is at the NBO (2.60). As it is indeed at the NBO, the processcontinues to step 822, where it checks if Away Market A's offer is on oroff the market center 20. As it is an away market quote, the processcontinues to step 824.

Incoming Reprice-And-Ship Inside Limit Buy Order Routes to the Best AwayMarket Offer

The process continues to step 824, where it allows the Routing Processto determine the highest-ranking eligible away market at the NBO. Inthis example, the Routing Process determines that both Away Market A andAway Market B are eligible away markets, but Away Market A has a higherpriority for routing. As no prior orders have been routed to Away MarketA in this example, the process satisfies its full disseminated offersize by routing 50 contracts to Away Market A, at the NBO price of 2.60.

After routing to Away Market A, the process continues to step 832, whereit checks if incoming Buy Order H has any quantity still available totrade. As it still has 140 contracts remaining, the process returns tostep 816, where it retrieves the best offer in the virtual consolidatedorder and quote list. As Away Market A's offer has been completelysatisfied, the best offer is now Away Market B's offer. In step 818, theprocess checks if incoming Buy Order H's price (2.65) is greater than orequal to Away Market B's offer (2.60). As incoming Buy Order H's priceis higher, the process continues to step 820, where it checks if AwayMarket B's offer (2.60) is at the NBO (2.60). As it is indeed at theNBO, the process continues to step 822, where it checks if Away MarketB's offer is on or off the market center 20. As it is an away marketquote, the process continues to step 824.

Incoming Reprice-And-Ship Inside Limit Buy Order Routes to the Next-BestAway Market Offer

The process continues to step 824, where the Routing Process determinesthat Away Market B is now eligible for routing. As no prior orders havebeen routed to Away Market B in this example, the process satisfies itsfull disseminated offer size by routing 40 contracts to Away Market B,at the NBO price of 2.60.

After routing to Away Market B, the process continues to step 832, whereit checks if incoming Buy Order H has any quantity still available totrade. As it still has 100 contracts remaining, the process returns tostep 816, where it retrieves the best offer in the virtual consolidatedorder and quote list, which is posted Sell Order F. In step 818, theprocess checks if incoming Buy Order H's price (2.65) is greater than orequal to posted Sell Order F's price (2.65). As the prices are equal,the process continues to step 820, where it checks if posted Sell OrderF's price (2.65) is at the NBO (2.60). As Sell Order F's price isinferior to the NBO, incoming Buy Order H cannot execute against it, asinside limit orders can only execute at the NBBO by definition in thisembodiment.

Incoming Reprice-And-Ship Inside Limit Buy Order is Capped at the NBOPrice, and Posted

The process continues to step 834, where it “caps” incoming Buy Order H,at the NBO price of 2.60. It does this by retaining incoming Buy OrderH's original limit price (2.65) for audit purposes, but posting it atthe NI30 price (2.60) so that it locks, but does not cross, the NBO. Theprocess continues to step 836, where it ranks Buy Order H in the DisplayOrder Process of the internal order book 29 a according to its “capped”price of 2.60, and disseminates Buy Order H to the public order book.

The NBBO is now 2.60 to 2.60 (100×90). The market is locked.

The virtual consolidated order and quote list now looks like this:

Bids Offers Order H: Buy 100 @ 2.60 ← Away Market A: Offer 50 @ 2.60MM2: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60 Order A: Buy 10 @ 2.50Order F: Sell 10 @ 2.65 Away Market C: Bid 30 @ 2.50 Away Market C:Offer 30 @ 2.65 LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Away Market B:Bid 40 @ 2.45 Away Market D: Offer 20 @ 2.70 Order B: Buy 10 @ 2.40 AwayMarket A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @2.35

The internal order book 29 a now looks like this:

Bids Offers Order H: Buy 100 @ 2.60 ← Order F: Sell 10 @ 2.65 Order A:Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35The market center BBO is now 2.60 to 2.65 (100×10)

The public order book looks like this:

Bids Offers 100 @ 2.60 ← 10 @ 2.65 40 @ 2.50 30 @ 2.70 40 @ 2.45 10 @2.40 10 @ 2.35Away Market Fills the Routed Order, and the Posted Reprice-And-ShipInside Limit Buy Order Ships AgainAway Market A fills the 50 contracts routed to it, but does not refreshits offerThe NBBO is still 2.60 to 2.60 (100×90). The market is still locked.

As described in step 840, whenever an away market completely fills anorder routed on behalf of a posted reprice-and-ship inside limit order,the process attempts to route to it again. As Away Market A completelyfilled the 50 contracts that were routed to it, the process checks thatAway Market A's offer (2.60) is still at the NBO (2.60). As it is, theprocess checks that posted Buy Order H (2.60) is also still priced atthe NBO (2.60). As it is, the process routes an additional 50 contractsto Away Market A, its full disseminated offer size, at the NBO price of2.60. Buy Order H still has 50 contracts remaining.

The NBBO is now 2.60 to 2.60 (50×90). The market is still locked.

The virtual consolidated order and quote list now looks like this:

Bids Offers Order H: Buy 50 @ 2.60 ← Away Market A: Offer 50 @ 2.60 MM2:Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60 Order A: Buy 10 @ 2.50Order F: Sell 10 @ 2.65 Away Market C: Bid 30 @ 2.50 Away Market C:Offer 30 @ 2.65 LMM:- Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Away Market B:Bid 40 @ 2.45 Away Market D: Offer 20 @ 2.70 Order B: Buy 10 @ 2.40 AwayMarket A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @2.35

The internal order book 29 a now looks like this:

Bids Offers Order H: Buy 50 @ 2.60 ← Order F: Sell 10 @ 2.65 Order A:Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35The market center BBO is now 2.60 to 2.65 (50×10)

The public order book now looks like this:

Bids Offers 50 @ 2.60← 10 @ 2.65 40 @ 2.50 30 @ 2.70 40 @ 2.45 10 @ 2.4010 @ 2.35Away Market Updates its Offer Price, Crossing, the PostedReprice-And-Ship Inside Limit Buy OrderAway Market A changes its offer, crossing posted Buy Order HThe NBBO is now 2.60 to 2.55 (50×30). The market is now crossed.

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.50 Away Market A: Offer 30 @ 2.55← Away Market B: Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.60 AwayMarket A: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.65 Away Market D:Bid 20 @ 2.40 Away Market D: Offer 20 @ 2.70

The quote engine 23 a notifies the order matching engine 21 of thechange to the NBO and to Away Market A's disseminated offer. Asdescribed in step 838, whenever an away market's offer price crosses aposted reprice-and-ship inside limit order buy order, the processreprices the posted reprice-and-ship inside limit order buy order at thenew NBO price. Accordingly, Buy Order H is repriced at 2.55, and losesits standing in the internal order book 29 a. Buy Order H is treated asif it were a new incoming order. The process returns to step 802, whereit retrieves the NBO (2.55) and checks if Buy Order H is marketable. Asit is, the process continues to step 806, where the order matchingengine 21 evaluates its matching opportunities by combining the awaymarket BBO book 25 a, the market maker quote book 33 a, and the internalorder book 29 a together in a virtual consolidated order and quote list,which it ranks in price/display/time priority, but with a preference forresident interest over away market interest at the same price level.

The virtual consolidated order and quote list looks like this:

Bids Offers Order H: Buy 50 @ 2.60 Away Market A: Offer 30 @ 2.55 ← MM2:Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60 Order A: Buy 10 @ 2.50Order F: Sell 10 @ 2.65 Away Market C: Bid 30 @ 2.50 Away Market C:Offer 30 @ 2.65 LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Away Market B:Bid 40 @ 2.45 Away Market D: Offer 20 @ 2.70 Order B: Buy 10 @ 2.40 AwayMarket A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @2.35

The process continues to step 808, where it checks if this issue has anyassigned market makers. As it does, the process continues to step 810,where it checks if “incoming” Buy Order H is a directed order or not. Itshould be noted that once an order is posted, it is never treated as adirected order again, even if it was originally sent as a directedorder. As Buy Order H is not a directed order, the process continues tostep 812, to initiate the “LMM Guaranteed Offer Process.” However, asthe LMM Offer is not replenished in any of the examples of this documentfor ease of illustration, the process continues to step 816 instead,where it retrieves Away Market A's offer. As Buy Order H's price isequal to Away Market A's offer, the process executes steps 818, 820, and822 as previously described.

In step 824, the process routes 30 contracts to Away Market A, its fulldisseminated offer size, at the new NBO price of 2.55. In step 832, theprocess determines that Buy Order H still has 20 contracts remaining,and returns to step 816, where it retrieves the best offer in thevirtual consolidated order and quote list, which is now Away Market B'soffer. In step 818, the process checks if Buy Order H's price (2.55) isgreater than or equal to Away Market B's offer (2.60). As Buy Order Hhas been repriced lower and can execute no further, the processcontinues to step 836, where it ranks Buy Order El in the Display OrderProcess of the internal order book 29 a according to its new cappedprice (2.55). It also disseminates Buy Order H to the public order bookat its new capped price.

The NBBO is now 2.55 to 2.55 (20×30). The market is now locked.

The virtual consolidated order and quote list now looks like this:

Bids Offers Order H: Buy 20 @ Away Market A: Offer 30 @ 2.55 2.55 ← MM2:Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60 Order A: Buy 10 @ 2.50Order F: Sell 10 @ 2.65 Away Market C: Bid 30 @ 2.50 Away Market C:Offer 30 @ 2.65 LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Away Market B:Bid 40 @ 2.45 Away Market D: Offer 20 @ 2.70 Order B: Buy 10 @ 2.40 AwayMarket A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @2.35

The internal order book 29 a now looks like this:

Bids Offers Order H: Buy 20 @ 2.55 ← Order F: Sell 10 @ 2.65 Order A:Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35The market center BBO is now 2.55 to 2.65 (20×10)

The public order book now looks like this:

Bids Offers 20 @ 2.55 ← 10 @ 2.65 40 @ 2.50 30 @ 2.70 40 @ 2.45 10 @2.40 10 @ 2.35Away Market Fills the Routed Order, but the Posted Reprice-And-ShipInside Limit Buy Order Cannot Ship to it AgainAway Market B fills the 40 contracts routed to it, but does not refreshits offerThe NBBO is still 2.55 to 2.55 (20×30). The market is still locked.

As described in step 840, whenever an away market completely fills anorder routed on behalf of a posted reprice-and-ship inside limit order,the process attempts to route to it again. As Away Market B completelyfilled the 40 contracts that were routed to it, the process checks ifAway Market B's offer (2.60) is still at the NBO (2.55). As Away MarketB's offer is no longer at the NBO, posted Buy Order H cannot routeadditional contracts to Away Market B.

Another Away Market Fills the Routed Order, but the PostedReprice-And-Ship Inside Limit Buy Order Cannot Ship to it Again

Away Market A fills the 30 additional contracts routed to it whilecontemporaneously fading its offer

The NBBO is now 2.55 to 2.60 (20×70). The market is no longer locked.

The away market BBO book 25 a now looks like this:

Bids Offers Away Market C: Bid 30 @ 2.50 Away Market A: Offer 30 @ 2.60← Away Market B: Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.60 AwayMarket A: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.65 Away Market D:Bid 20 @ 2.40 Away Market D: Offer 20 @ 2.70

The quote engine 23 a notifies the order matching engine 21 of the newNBO price. When the order matching engine 21 receives the notificationfrom the quote engine 23 a, it evaluates its matching opportunities bycombining the away market BBO book 25 a, the market maker quote book 33a, and the internal order book 29 a together in a virtual consolidatedorder and quote list, which it ranks in price/display/time priority, butwith a preference for resident interest over away market interest at thesame price level.

The virtual consolidated order and quote list looks like this:

Bids Offers Order H: Buy 20 @ 2.55 Away Market A: Offer 30 @ 2.60 ← MM2:Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60 Order A: Buy 10 @ 2.50Order F: Sell 10 @ 2.65 Away Market C: Bid 30 @ 2.50 Away Market C:Offer 30 @ 2.65 LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Away Market B:Bid 40 @ 2.45 Away Market D: Offer 20 @ 2.70 Order B: Buy 10 @ 2.40 AwayMarket A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @2.35

As described in step 840, whenever an away market completely fills anorder routed on behalf of a posted reprice-and-ship inside limit order,the process, attempts to route to it again. As Away Market A completelyfilled the 30 contracts that were routed to it, the process checks thatAway Market A's offer (2.60) is still at the NBO (2.60). As it is, theprocess checks if posted Buy Order H (2.55) is also still priced at theNBO (2.60). As posted Buy Order H is no longer at the NBO, it cannotroute to Away Market A. As posted reprice-and-ship inside limit ordersare only repriced less aggressively, and are not repriced moreaggressively, Buy Order H remains posted at its current price. Thevirtual consolidated order and quote list is deleted from local memory.

Stand-Your-Ground Inside Limit Orders

Similar to a reprice-and-ship inside limit order, a stand-your-groundinside limit order is capped at the inside price, and will not executeat a price that is inferior to the NBBO. Accordingly, it can route toaway markets only if they are quoting at the NBBO, and any remainingquantity cannot route to the next-best price level until all the quotesat the current NBBO are exhausted. For example, a stand-your-groundinside limit sell order that is priced at or better than the NBB wouldexecute in the sequence shown below:

Bid Side of the Virtual Consolidated Order and Quote List Price DisplayOrder Routing Point Process Working Order Process Process Highest 1.Displayed 2. Reserve 3. Passive 4. Discretionary 5. Tracking 6. Awayprice orders and quotes order quantity Liquidity orders that canLiquidity Market (NBB) Orders step up to the NBB Orders Bids

An incoming stand-your-ground inside limit order that cannot executewhen it is received is immediately posted at its user-specified limitprice. The nonmarketable stand-your-ground inside limit order isinserted in the internal order book 29 a and ranked according toprice/time priority in the Display Order Process. The order is alsodisseminated to the public order book. Posted customer stand-your-groundinside limit orders that are priced at the NBBO are eligible to executeagainst incoming marketable orders in the LMM Guarantee Process or theDirected Order Process, like any other displayed order type, if theyhave time priority over the eligible market maker quote.

An incoming stand-your-ground inside limit order that is marketable atthe opposite side of the NBBO will participate in the LMM GuaranteeProcess if the lead market maker is quoting at the opposite side of theNBBO. Similarly, if the business rules of the market center 20 allowstand-your-ground inside limit orders to be directed to a specificmarket maker, then an incoming stand-your-ground inside limit order thatis executable at the opposite side of the NBBO will participate in theDirected Order Process if the designated market maker is quoting at theopposite side of the NBBO.

Once posted, in this embodiment, the behavior of a stand-your-groundinside limit order is very different from a reprice-and-ship insidelimit order. Although both order types may be automatically capped(repriced) to lock, but not cross, the NBBO, a posted reprice-and-shipinside limit order is only repriced less aggressively (i.e., when theNBBO moves into it) whereas a posted stand-your-ground inside limitorder is only repriced more aggressively (i.e., when the NBBO moves awayfrom it). Whereas a reprice-and-ship inside limit order does not standits ground when locked or crossed by an away market 24 and ships to thelocking/crossing away market 24, in contrast, a stand-your-ground insidelimit order stands its ground when locked or crossed and does not ship.Whereas a reprice-and-ship inside limit order generally continues toship additional contracts to an away market 24 as long as fills arereceived, in contrast, a stand-your-ground inside limit order onlyroutes when initially locking an away market 24, and does not routeadditional contracts when fills are received.

If a stand-your-ground inside limit order's price would cross the NBBOif it were to be posted, it is automatically capped at the opposite sideof the NBBO before it is posted, i.e., the order will lock the marketbut it will not cross the market. The remaining portion of thestand-your-ground inside limit order is inserted in the Display OrderProcess of the internal order book 29 a and is ranked according to theprice/time priority of its current (capped) displayed price. The orderis also disseminated to the public order book at its current (capped)displayed price. The process stores the original user-specified price sothat the order can subsequently be repriced more aggressively if theNBBO moves away. As in this embodiment, the quote engine 23 a notifiesthe order matching engine 21 whenever a disseminated best bid or offerquote price touches any order price, whether displayed or not, and thismay increase the processing overhead, stand-your-ground inside limitorders are subject to the check for excessive marketability when theyare first received to ensure that their original prices are not too farthrough the NBBO.

If the NBBO moves away from the posted stand-your-ground inside limitorder so that the market is no longer locked, then the process removesthe cap, and allows the order to revert to its original user-specifiedlimit price. The repriced order loses its standing in the internal orderbook 29 a and is processed as if it were a new incoming order. After thestand-your-ground inside limit order can execute no further, if itsprice would still cross the market if it were to be posted, it isautomatically capped at the opposite side of the new NBBO before it isposted, locking the market again. This process continues until thestand-your-ground inside limit order is depleted, or can be displayed atits original user-specified limit price without crossing the market.Once the stand-your-ground inside limit order is displayed at itsoriginal user-specified price, it is never capped again.

As described above, the unfilled portion of the stand-your-ground insidelimit order is not routed to the next price level until all the quotesat the current NBBO are exhausted and the away markets fade theirquotes. This behavior is referred to as “walking the book,” as eachprice level must be cleared before proceeding to the next price level.As each price level is cleared, the stand-your-ground inside limit ordercan execute at an increasingly aggressive price.

In a different embodiment, a stand-your-ground inside limit orderre-prices, re-ranks, and executes as described above, except that theorder is not displayed to the marketplace until it becomesnonmarketable. Accordingly, in this alternative embodiment, thestand-your-ground inside limit order is queued rather than posted whileit is in the process of “walking the book.”

Incoming Stand-Your-Ground Inside Limit Buy Order Received Process

Referring now to FIGS. 10A-10B, the process is illustrated where theorder matching engine 21 receives an incoming stand-your-ground insidelimit buy order. In this embodiment, an incoming marketablestand-your-ground inside limit buy order routes to all away markets atthe NI30 and then any remaining portion of the order is capped(repriced) at the NBO and posted, locking the market. Once posted, theorder neither reprices nor ships if locked or crossed by an away marketquote. If the order has been capped and the NBO subsequently moves awayfrom the order's capped price, then the cap is removed and the order isallowed to execute further at the new inside price.

In step 1002, the process retrieves the NBO, and in step 1004, theprocess determines if the incoming stand-your-ground inside limit buyorder is marketable. If the incoming buy order is marketable, then theprocess continues to step 1005, where it initiates the “Too-ExecutableBuy Order Check Process,” and proceeds to step 1600 in FIG. 16. If theincoming buy order is not canceled in the “Too-Executable Buy OrderCheck Process,” i.e., it is not determined to be too executable, thenthe process continues to step 1006, where it creates a virtualconsolidated order and quote list for the option series.

The process continues to step 1008, where it checks if the option serieshas any assigned market makers. If it does, then the process continuesto step 1010, where it checks if the incoming stand-your-ground insidelimit buy order is a directed order or not. If the incomingstand-your-ground inside limit buy order is a directed order, then theprocess continues to step 1014 where the “Directed Order Process” isinitiated in step 2000 in FIG. 20A. If, however, the, incomingstand-your-ground inside limit buy order is not a directed order, thenthe process proceeds to step 1012 where the “LMM Guaranteed OfferProcess” is initiated instead in step 1900 in FIG. 19.

Regardless of whether the incoming stand-your-ground inside limit buyorder executes in the Directed Order Process, in the LMM GuaranteedOffer Process, or in neither process (if the applicable market maker isnot quoting at the NBO and is therefore ineligible for a guaranteedentitlement, or else if the issue does not have any assigned marketmakers), if the incoming stand-your-ground inside limit buy order stillhas quantity available to trade, then the process continues to step1016, where it retrieves the best offer in the virtual consolidatedorder and quote list, i.e., the sell order, market maker quote, ordisseminated away market quote with the highest ranking. In step 1018,the process checks if the incoming stand-your-ground inside limit buyorder is still marketable (by way of explanation, it is possible that itis no longer marketable if the quotes and orders at the NBO wereexhausted).

At step 1018, if the process determines that the incomingstand-your-ground inside limit buy order is still marketable, then itcontinues to step 1020, where it checks if the retrieved best offer isat the NBO. If the retrieved best offer is at the NBO, then the processcontinues to step 1022, where it checks if the retrieved best offer ison or off the market center 20. If the retrieved best offer is on themarket center 20, then the process continues to step 1026, where if theretrieved best offer is a market maker quote, the process automaticallygenerates an IOC sell pseudo-order on behalf of the underlying marketmaker quote. The process continues to step 1028, where it matches theincoming stand-your-ground inside limit buy order against the retrievedsell order or pseudo-order, at the NBO price. If the matched sell orderis a pseudo-order, then in step 1030, the process notifies the marketmaker quote engine 32 b of the quantity that was executed so that themarket maker quote engine 32 b can decrement the underlying market makerquote.

The process continues to step 1032, where it checks if the incomingstand-your-ground inside limit buy order still has quantity available totrade. If it does not, then the process continues to step 1046, where itterminates as indicated. If, however, the incoming stand-your-groundinside limit buy order does still have remaining quantity, then theprocess returns to step 1016, where it retrieves the next-best offer inthe virtual consolidated order and quote list and continues to step1018, where it checks if the incoming stand-your-ground inside limit buyorder is still marketable. The process continues to execute the incomingstand-your-ground inside limit buy order against all resident tradinginterest at the NBO as described above, until the incomingstand-your-ground inside limit buy order is depleted, or else until theretrieved best offer is an away market quote, as described next.

Returning to step 1022, if the retrieved best offer is an away marketquote, then the process releases the incoming stand-your-ground insidelimit buy order to the Routing Process, which routes to thehighest-ranking away market as appropriate, up to its disseminated offersize, at the NBO price. After routing to the away market, the processcontinues to step 1032, where it checks if the incomingstand-your-ground inside limit buy order still has quantity available totrade. If the order is depleted, then the process terminates in step1046 as indicated. If, however, the order still has remaining quantity,then it returns to step 1016, where it retrieves the next best offer,and if the next best offer is also at the NBO, will proceed to route tothe next-highest ranked away market quote as just described. The processrepeats these steps until the incoming buy order is depleted, or untilthe retrieved best offer is no longer at the NBO, as described next.

Returning to step 1020, if, however, the retrieved best offer isinferior to the NI30, then the incoming buy order can execute no furtherat the present time, and the remaining quantity must be posted. Theprocess continues to step 1040, where it caps the incomingstand-your-ground inside limit buy order at the NBO so that it locks,but does not cross, the market. In step 1042, the process ranks thecapped stand-your-ground inside limit buy order in the Display OrderProcess of the internal order book 29 a according to the price/timepriority of its capped (NBO) price. The process also disseminates theorder to the public order book at its capped (NBO) price.

Continuing to step 1044, if the NBO price should move higher than theposted stand-your-ground inside limit buy order's displayed price sothat the market is no longer locked, then the process removes the cap,allows the stand-your-ground inside limit buy order to revert to itsoriginal user-specified limit price, and processes it as if it were anew incoming order. Accordingly, the process returns to step 1002, andthe repriced stand-your-ground inside limit buy order is allowed toexecute further at its more aggressive price if the order has executedall interest at the new NBO but still has quantity remaining, then atstep 1040, the process caps the order at the new NBO price, and posts itagain at step 1042. This process is repeated until the stand-your-groundinside limit buy order is depleted, or else until the NBO moves away tothe extent to which the order can be displayed at its originaluser-specified price without crossing the market. Once the order isdisplayed at its original user-specified limit price, it is never cappedagain. The process then terminates in step 1046 as indicated.

Returning to step 1004, if, however, the incoming stand-your-groundinside limit buy order was never marketable, then the process continuesto step 1034, where it ranks the order at its user-specified price inthe Display Order Process of the internal order book 29 a according toprice/time priority, and disseminates the order to the public orderbook. As the nonmarketable order is ranked at its original limit price,it is not affected when the NBO changes. The process then terminates instep 1036 as indicated.

Returning to step 1018, if, however, the incoming stand-your-groundinside limit buy order is no longer marketable, then the processcontinues to step 1034 and 1036 as just described.

Incoming Stand-Your-Ground Inside Limit Sell Order Received Process

Referring now to FIGS. 11A-11B, the process is illustrated where theorder matching engine 21 receives an incoming stand-your-ground insidelimit sell order. This routine is very similar to the process describedabove in FIGS. 10A-10B for receiving an incoming stand-your-groundinside limit buy order.

In step 1102, the process retrieves the NBB, and in step 1104, theprocess determines if the incoming stand-your-ground inside limit sellorder is marketable. If the incoming sell order is marketable, then theprocess continues to step 1105, initiates the “Too-Executable Sell OrderCheck Process,” and proceeds to step 1700 in FIG. 17. If the incomingsell order is not canceled in the Too-Executable Sell Order CheckProcess, i.e., it is not determined to be too executable, then theprocess continues to step 1106, where it creates a virtual consolidatedorder and quote list for the option series.

The process continues to step 1108, where it checks if the option serieshas any assigned market makers. If it does, then the process continuesto step 1110, where it checks if the incoming stand-your-ground insidelimit sell order is a directed order or not. If the incomingstand-your-ground inside limit sell order is a directed order, then theprocess continues to step 1114 where the “Directed Order Process” isinitiated in step 2000 in FIG. 20A. If, however, the incomingstand-your-ground inside limit sell order is not a directed order, thenthe process proceeds to step 1112 where the “LMM Guaranteed Bid Process”is initiated instead in step 1800 in FIG. 18.

Regardless of whether the incoming stand-your-ground inside limit sellorder executes in the Directed Order Process, in the LMM Guaranteed BidProcess, or in neither process (if the applicable market maker is notquoting at the NBB and is therefore ineligible for a guaranteedentitlement, or else if the issue does not have any assigned marketmakers), if the incoming stand-your-ground inside limit sell order stillhas quantity available to trade, then the process continues to step1116, where it retrieves the best bid in the virtual consolidated orderand quote list, i.e., the buy order, market maker quote, or disseminatedaway market quote with the highest ranking. In step 1118, the processchecks if the incoming stand-your-ground inside limit sell order isstill marketable (by way of explanation, it is possible that it is nolonger marketable if the quotes and orders at the NBB were exhausted).

At step 1118, if the process determines that the incomingstand-your-ground inside limit sell order is still marketable, then itcontinues to step 1120, where it checks if the retrieved best bid is atthe NBB. If the retrieved best bid is at the NBB, then the processcontinues to step 1122, where it checks if the retrieved best bid is onor off the market center 20. If the retrieved best bid is on the marketcenter 20, then the process continues to step 1126, where if theretrieved best bid is a market maker quote, the process automaticallygenerates an IOC buy pseudo-order on behalf of the underlying marketmaker quote. The process continues to step 1128, where it matches theincoming stand-your-ground inside limit sell order against the retrievedbuy order or pseudo-order, at the NBB price. If the matched buy order isa pseudo-order, then in step 1130, the process notifies the market makerquote engine 32 b of the quantity that was executed so that the marketmaker quote engine 32 b can decrement the underlying market maker quote.

The process continues to step 1132, where it checks if the incomingstand-your-ground inside limit sell order still has quantity availableto trade. If it does not, then the process continues to step 1146, whereit terminates as indicated. If, however, the incoming stand-your-groundinside limit sell order does still have remaining quantity, then theprocess returns to step 1116, where it retrieves the next-best bid inthe virtual consolidated order and quote list and continues to step1118, where it checks if the incoming stand-your-ground inside limitsell order is still marketable. The process continues to execute theincoming stand-your-ground inside limit sell order against all residenttrading interest at the NBB as described above, until the incomingstand-your-ground inside limit sell order is depleted, or else until theretrieved best bid is an away market quote, as described next.

Returning to step 1122, if the retrieved best bid is an away marketquote, then the process releases the incoming stand-your-ground insidelimit sell order to the Routing Process, which routes to thehighest-ranking away market as appropriate, up to its disseminated Bidsize, at the NBB price. After routing to the away market, the processcontinues to step 1132, where it checks if the incomingstand-your-ground inside limit sell order still has quantity availableto trade. If the order is depleted, then the process terminates in step1146 as indicated. If, however, the order still has remaining quantity,then it returns to step 1116, where it retrieves the next best bid, andif the next best bid is also at the NBB, will proceed to route to thenext-highest ranked away market quote as just described. The processrepeats these steps until the incoming sell order is depleted, or untilthe retrieved best bid is no longer at the NBB, as described next.

Returning to step 1120, if, however, the retrieved best bid is inferiorto the NBB, then the incoming sell order can execute no further at thepresent time, and the remaining quantity must be posted. The processcontinues to step 1140, where it caps the incoming stand-your-groundinside limit sell order at the NBB so that it locks, but does not cross,the market. In step 1142, the process ranks the capped stand-your-groundinside limit sell order in the Display Order Process of the internalorder book 29 a according to the price/time priority of its capped (NBB)price. The process also disseminates the order to the public order bookat its capped (NBB) price.

Continuing to step 1144, if the NBB price should move lower than theposted stand-your-ground inside limit sell order's displayed price sothat the market is no longer locked, then the process removes the cap,allows the stand-your-ground inside limit sell order to revert to itsoriginal user-specified limit price, and processes it as if it were anew incoming order. Accordingly, the process returns to step 1102, andthe repriced stand-your-ground inside limit sell order is allowed toexecute further at its more aggressive price if the order has executedall interest at the new NBB but still has quantity remaining, then atstep 1140, the process caps the order at the new NBB price, and posts itagain at step 1142. This process is repeated until the stand-your-groundinside limit sell order is depleted, or else until the NBB moves away tothe extent to which the order can be displayed at its originaluser-specified price without crossing the market. Once the order isdisplayed at its original user-specified limit price, it is never cappedagain. The process then terminates in step 1146 as indicated.

Returning to step 1104, if, however, the incoming stand-your-groundinside limit sell order was never marketable, then the process continuesto step 1134, where it ranks the order at its user-specified price inthe Display Order Process of the internal order book 29 a according toprice/time priority, and disseminates the order to the public orderbook. As the nonmarketable order is ranked at its original limit price,it is not affected when the NBB changes. The process then terminates instep 1136 as indicated.

Returning to step 1118, if, however, the incoming stand-your-groundinside limit sell order is no longer marketable, then the processcontinues to step 1134 and 1136 as just described.

Stand-Your-Ground Inside Limit Order Trading Example

In this example, the issue has an assigned lead market maker (LMM) thatis quoting at the NBO when a marketable incoming stand-your-groundinside limit buy order is received. The stand-your-ground inside limitbuy order executes in the LMM Guaranteed Offer Process and the DisplayOrder Process and then routes to the away markets at the NBO. Afterrouting at the NBO, the order is repriced less aggressively so that itlocks, but does not cross, the NBO. When the away markets fill the orderrouted to it, the posted stand-your-ground inside limit order does notroute additional quantity to them. When an away market updates its offerprice and the new offer price crosses the price of the postedstand-your-ground inside limit order, the order is not repriced and doesnot route. When the NBO moves away from the posted stand-your-groundinside limit order, the order reverts to its user-specified price,routes again, and is automatically repriced and posted at the new, moreaggressive NBO price.

The NBBO is 2.50 to 2.60 (70×150).

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60Away Market B: Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.60 Away MarketA: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.65 Away Market D: Bid 20 @2.40 Away Market D: Offer 20 @ 2.70

The market maker quote book 33 a looks like this:

Bids Offers MM2: Bid 30 @ 2.50 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45MM2: Offer 30 @ 2.70

The internal order book 29 a looks like this. Order D is on behalf of acustomer, whereas Order E is not:

Bids Offers Order A: Buy 10 @ 2.50 Order D: Sell 10 @ 2.60 Order B: Buy10 @ 2.40 Order E: Sell 10 @ 2.60 Order C: Buy 10 @ 2.35 Order F: Sell10 @ 2.65The market center BBO is 2.50 to 2.60 (40×60)

The public order book looks like this:

Bids Offers 40 @ 2.50 60 @ 2.60 20 @ 2.45 10 @ 2.65 10 @ 2.40 30 @ 2.7010 @ 235Incoming Marketable Stand-Your-Ground Inside Limit Buy Order is Received

In step 1000, the order matching engine 21 receives the following order:

Order I: Buy 250 @ 2.70, Stand-your-Ground Inside Limit

In step 1002, the process retrieves the NBO (2.60). In step 1004, theprocess checks if incoming Buy Order I is marketable, i.e., is priced ator better than the NBO. As it is, the process continues to step 1005,where initiates the “Too-Executable Buy Order Check Process,” andproceeds to step 1600 in FIG. 16.

In step 1602, the process checks if incoming Buy Order 1's price (2.70)is higher than the NBO (2.60). As it is, the process continues to step1604, where it checks if stand-your-ground inside limit orders should bechecked for excessive marketability. As the check for excessivemarketability is enabled for this order type in this embodiment, theprocess continues to step 1608, where it retrieves the“MaxPercentOffNBBO” parameter, which is configured to 15% in thisexample. It should be noted that the minimum price increment (tick) forthis issue is 0.05. In step 1610, the process computes theMaxPriceThruNBO by multiplying the NBO (2.60) by the MaxPercentOffNBBO(15%), deriving the MaxPriceThruNBO=0.35 (15% of 2.60=0.39, rounded downto 0.35, the nearest tick). In step 1612, the process computes theMaxBuyPrice by adding the derived MaxPriceThruNBO (0.35) to the NBO(2.60), deriving the MaxBuyPrice of 2.95 (2.60+0.35=2.95). Accordingly,the highest price allowable for incoming Buy Order I is 2.95. Theprocess continues to step 1614, where it checks if incoming Buy Order1's price (2.70) is higher than the MaxBuyPrice (2.95). As it is nothigher, incoming Buy Order I does not need to be repriced or canceled,and the process continues to step 1616, where it returns to the stepwhere it was originally invoked, back to step 1005.

The process continues to 1006, where it creates a virtual consolidatedorder and quote list. In this example, Sell Orders D and E were receivedbefore the LMM Offer was quoted.

The virtual consolidated order and quote list looks like this:

Bids Offers MM2: Bid 30@ 2.50 Order D: Sell 10 @ 2.60 Order A: Buy 10 @2.50 Order E: Sell 10 @ 2.60 Away Market C: Bid 30 @ 2.50 LMM: Offer 40@ 2.60 LMM: Bid 40 @ 2.45 Away Market A: Offer 50 @ 2.60 Away Market B:Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.60 Order B: Buy 10 @ 2.40Order F: Sell 10 @ 2.65 Away Market A: Bid 50 @ 2.40 Away Market C:Offer 30 @ 2.65 Away Market D: Bid 20 @ 2.40 MM2: Offer 30 @ 2.70 OrderC: Buy 10 @ 2.35 Away Market D: Offer 20 @ 2.70

The process continues to step 1008, where it checks if this issue hasany assigned market makers. As it does, the process continues to step1010, where it checks if incoming Buy Order I is a directed order ornot. As it is not a directed order, the process continues to step 1012,where it initiates the “LMM Guaranteed Offer Process,” and proceeds tostep 1900 in FIG. 19.

LMM Guarantee Process is in Effect for this Issue

In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In step1904, it checks if the LMM Offer is at the NBO (2.60). As it is, thelead market maker is entitled to guaranteed participation with incomingBuy Order I, after any superior displayed customer orders are executedfirst. The process continues to step 1908, where it checks if incomingBuy Order I's order size (250) is greater than two contracts. As it is,the process continues to step 1914.

Incoming Stand-Your-Ground Inside Limit Buy Order Matches the DisplayedCustomer Sell Order with Time Priority Over the LMM Offer

In step 1914, the process checks if there are any customer sell ordersdisplayed at the NBO, and finds posted Sell Order D. The processcontinues to step 1916, where it stores the timestamp on the LMM Offerin the parameter “LMMOfferTimestamp.” In step 1918, the processretrieves the earliest displayed customer sell order at the NBO, SellOrder D, and in step 1920, the process compares the timestamp of postedSell Order D to the LMMOfferTimestamp. As posted Sell Order D wasreceived earlier than the LMM Offer, the process continues to step 1922,where it matches 10 contracts of incoming Buy Order I with posted SellOrder D, completely depleting posted Sell Order D and removing it fromthe books.

The process continues to step 1924, where it checks if incoming BuyOrder I still has quantity available to trade. As it still has 240contracts remaining, the process continues to step 1928, where it checksif there are any additional customer sell orders at the NBO. As thereare none (Sell Order E is not on behalf of a customer), the processcontinues to step 1932.

Incoming Stand-Your-Ground Inside Limit Buy Order Matches the LMM Offer

In step 1932, the process retrieves the LMMGuaranteedPercent parameter,which is configured to 40% in this example. In step 1934, the processderives the LMMGuaranteedAllocation (96 contracts) by multiplying theLMMGuaranteedPercent (40%) by the remaining portion of incoming BuyOrder I (240 contracts). The LMMGuaranteedAllocation is the maximumquantity of contracts that can execute in the LMM Guarantee Process.

In step 1938, the process matches 40 contracts of incoming Buy Order Iagainst the LMM Offer, the lesser of the LMMGuaranteedAllocation (96contracts) and the LMM Offer size (40 contracts), at the NBO price of2.60. It does this by generating an IOC pseudo-order to Sell 40 @ 2.60on behalf of the LMM Offer, and executing incoming Buy Order I againstthe sell pseudo-order. The LMM Offer at 2.60 is completely depleted, andis removed from the virtual consolidated order and quote list. Theprocess notifies the market maker quote engine 32 b to decrement the LMMOffer by the 40 contracts executed. The LMM Guaranteed Offer Process hascompleted.

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Order E: Sell 10 @ 2.60 Order A: Buy 10 @2.50 Away Market A: Offer 50 @ 2.60 Away Market C: Bid 30 @ 2.50 AwayMarket B: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45 Order F: Sell 10 @ 2.65Away Market B: Bid 40 @ 2.45 Away Market C: Offer 30 @ 2.65 Order B: Buy10 @ 2.40 MM2: Offer 30 @ 2.70 Away Market A: Bid 50 @ 2.40 Away MarketD: Offer 20 @ 2.70 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The market maker quote engine 32 b decrements the LMM Offer by the 40contracts executed, completely depleting it. The market maker quote book33 a now looks like this (the lead market maker will manually replenishits offer, but this is not illustrated to simplify the example):

Bids Offers MM2: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70 LMM: Bid 40 @ 2.45

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order E: Sell 10 @ 2.60 Order B: Buy10 @ 2.40 Order F: Sell 10 @ 2.65 Order C: Buy 10 @ 2.35The market center BBO is now 2.50 to 2.60 (40×10) 1003021

The public order book looks like this:

Bids Offers 40 @ 2.50 10 @ 2.60 ← 40 @ 2.45 10 @ 2.65 10 @ 2.40 30 @2.70 10 @ 2.35

The process continues to step 1942, where it checks if incoming BuyOrder I still has any quantity available to trade. As it still has 200contracts remaining, the process continues to step 1946, where itreturns to the step where the routine was originally invoked, back tostep 1012 of FIG. 10A.

Incoming Stand-Your-Ground Inside Limit Buy Order Matches theNon-Customer Sell Order

The process continues to step 1016, where it retrieves the best offer inthe virtual consolidated order and quote list, which is posted SellOrder E. In step 1018, the process checks if incoming Buy Order I'sprice (2.70) is greater than or equal to posted Sell Order E's price(2.60). As incoming Buy Order I's price is higher, the process continuesto step 1020, where it checks if posted Sell Order E's price (2.60) isat the NBO (2.60). As Sell Order E is at the NBO, the process continuesto step 1022, where it checks if posted Sell Order E is on or off themarket center 20. As it is a resident book order, the process bypassesstep 1026 and continues to step 1028, where it matches 10 contracts ofincoming Buy Order I against posted Sell Order E, at the NBO price of2.60. Posted Sell Order E is completely depleted and is removed from thebooks.

The NBBO is now 2.50 to 2.60 (70×90)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60 Order A:Buy 10 @ 2.50 Away Market B: Offer 40 @ 2.60 Away Market C: Bid 30 @2.50 Order F: Sell 10 @ 2.65 LMM: Bid 40 @ 2.45 Away Market C: Offer 30@ 2.65 Away Market B: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Order B: Buy 10@ 2.40 Away Market D: Offer 20 @ 2.70 Away Market A: Bid 50 @ 2.40 AwayMarket D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Order B: Buy10 @ 2.40 Order C: Buy 10 @ 2.35The market center BBO is now 2.50 to 2.65 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.50 10 @ 2.65 ← 40 @ 2.45 30 @ 2.70 10 @ 2.40 10 @2.35

The process bypasses step 1030 and continues to step 1032, where itchecks if incoming Buy Order 1 still has any quantity available totrade. As it still has 190 contracts remaining, the process returns tostep 1016 and retrieves the best offer in the virtual consolidated orderand quote list, which is Away Market A's offer. In step 1018, theprocess checks if incoming Buy Order I's price (2.70) is greater than orequal to Away Market A's offer (2.60). As incoming Buy Order I's priceis higher, the process continues to step 1020, where it checks if AwayMarket A's offer (2.60) is at the NBO (2.60). As it is indeed at theNBO, the process continues to step 1022, where it checks if Away MarketA's offer is on or off the market center 20. As it is an away marketquote, the process continues to step 1024.

Incoming Stand-Your-Ground Inside Limit Buy Order Routes to the BestAway Market Offer

The process continues to step 1024, where it allows the Routing Processto determine the highest-ranking eligible away market at the NBO. Inthis example, the Routing Process determines that both Away Market A andAway Market B are eligible away markets, but Away Market A has a higherpriority for routing. As no prior orders have been routed to Away MarketA in this example, the process satisfies its full disseminated offersize by routing 50 contracts to Away Market A, at the NBO price of 2.60.

After routing to Away Market A, the process continues to step 1032,where it checks if incoming Buy Order I has any quantity still availableto trade. As it still has 140 contracts remaining, the process returnsto step 1016, where it retrieves the best offer in the virtualconsolidated order and quote list. As Away Market A's offer has beencompletely satisfied, the best offer is now Away Market B's offer. Instep 1018, the process checks if incoming Buy Order I's price (2.70) isgreater than or equal to Away Market B's offer (2.60). As incoming BuyOrder I's price is higher, the process continues to step 1020, where itchecks if Away Market B's offer (2.60) is at the NBO (2.60). As it isindeed at the NBO, the process continues to step 1022, where it checksif Away Market B's offer is on or off the market center 20. As it is anaway market quote, the process continues to step 1024.

Incoming Stand-Your-Ground Inside Limit Buy Order Routes to theNext-Best Away Market Offer

The process continues to step 1024, where the Routing Process determinesthat Away Market B is now eligible for routing. As no prior orders havebeen routed to Away Market B in this example, the process satisfies itsfull disseminated offer size by routing 40 contracts to Away Market B,at the NBO price of 2.60.

After routing to Away Market B, the process continues to step 1032,where it checks if incoming Buy Order I has any quantity still availableto trade. As it still has 100 contracts remaining, the process returnsto step 1016, where it retrieves the best offer in the virtualconsolidated order and quote list, which is posted Sell Order F. In step1018, the process checks if incoming Buy Order I's price (2.70) isgreater than or equal to posted Sell Order F's price (2.65). As incomingBuy Order I's price is higher, the process continues to step 1020, whereit checks if posted Sell Order F's price (2.65) is at the NBO (2.60). AsSell Order F's price is inferior to the NBO, incoming Buy Order I cannotexecute against it, as inside limit orders can only execute at the NBBOby definition in this embodiment.

Incoming Stand-Your-Ground Inside Limit Buy Order is Capped at the NBOand Posted

The process continues to step 1040, where it “caps” incoming Buy OrderI, at the NBO price of 2.60. It does this by retaining incoming BuyOrder I's original limit price (2.70), but posting it at the NBO price(2.60) so that it locks, but does not cross, the NBO. The processcontinues to step 1042, where it ranks Buy Order I in the Display OrderProcess of the internal order book 29 a according to its “capped” priceof 2.60, and disseminates Buy Order I to the public order book.

The NBBO is now 2.60 to 2.60 (100×90). The market is locked

The virtual consolidated order and quote list now looks like this:

Bids Offers Order I: Buy 100 @ Away Market A: Offer 50 @ 2.60 2.60 ←Away Market B: Offer 40 @ 2.60 Original Order F: Sell 10 @ 2.65 price =2.70 Away Market C: Offer 30 @ 2.65 MM2: Bid 30 @ 2.50 MM2: Offer 30 @2.70 Order A: Buy 10 @ 2.50 Away Market D: Offer 20 @ 2.70 Away MarketC: Bid 30 @ 2.50 LMM: Bid 40 @ 2.45 Away Market B: Bid 40 @ 2.45 OrderB: Buy 10 @ 2.40 Away Market A: Bid 50 @ 2.40 Away Market D: Bid 20 @2.40 Order C: Buy 10 @ 2.35

The internal order book 29 a now looks like this:

Bids Offers Order I: Buy 100 @ 2.60 ← Order F: Sell 10 @ 2.65 Originalprice = 2.70 Order A: Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order C: Buy10 @ 2.35The market center BBO is now 2.60 to 2.65 (100×10)

The public order book looks like this:

Bids Offers 100 @ 2.60 ← 10 @2.65  40 @ 2.50 30 @ 2.70  40 @ 2.45  10 @2.40  10 @ 2.35Away Markets Fill the Routed Orders but the Posted Stand-Your-GroundInside Limit BuyOrder does not Ship Additional QuantityAway Market A fills the 50 contracts routed to it

Unlike a reprice-and-ship inside limit order, which routes to an awaymarket that fills it so long as the away market and the posted order areboth still at the NBBO, in this embodiment, a stand-your-ground insidelimit order does NOT ship additional contracts to an away market inresponse to a fill. Accordingly, posted Buy Order I does not ship toAway Market A.

Away Market B fills the 40 contracts routed to it

Just as posted Buy Order I did not ship to Away Market A, neither doesit ship to Away Market B.

Away Market Fades its Offer Price, but the NBO Price Remains Unchanged

Away Market A fades its offer from the NBO

The NBBO is now 2.60 to 2.60 (100×40). The market is still locked.

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.60Away Market B: Bid 40 @ 2.45 Away Market C: Offer 30 @ 2.65 Away MarketA: Bid 50 @ 2.40 Away Market A: Offer 30 @ 2.65 ← Away Market D: Bid 20@ 2.40 Away Market D: Offer 20 @ 2.70

The quote engine 23 a notifies the order matching engine 21 of thechange to Away Market A's offer price. As the NBO price is still 2.60,posted Buy Order I is not affected by Away Market A's new offer, as itonly reduces the size at the current NBO price of 2.60.

Second Away Market Fades its Offer Price and the NBO Moves Away from theCapped Stand-Your-Ground Inside Limit Buy Order

Away Market B fades its offer from the NBO

The NBBO is now 2.60 to 2.65 (100×90). The market is no longer locked.

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.50 Away Market C: Offer 30 @ 2.65Away Market B: Bid 40 @ 2.45 Away Market A: Offer 30 @ 2.65 Away MarketA: Bid 50 @ 2.40 Away Market B: Offer 20 @ 2.65 ← Away Market D: Bid 20@ 2.40 Away Market D: Offer 20 @ 2.70

The quote engine 23 a notifies the order matching engine 21 of thechange to Away Market B's offer price, and the change to the NBO price.As described in step 1044, as the NBO price has moved higher (it waspreviously 2.60, but is now 2.65), the process removes the cap fromposted Buy Order I, allowing it to revert to its original order price of2.70, and processes it as if it were a new incoming order, removing itfrom the books.

Posted Stand-Your-Ground Inside Limit Buy Order's Cap is Removed, andthe Remaining Quantity is Processed Like a New Incoming Order

In step 1002, the process retrieves the NBO (2.65). In step 1004, itchecks if “incoming” Buy Order 1's price (2.70, its original price) ismarketable, i.e., is at or better than the NBO (2.65). As it is, theprocess continues to step 1005, where it initiates the “Too-ExecutableBuy Order Check Process,” and proceeds to step 1600 in FIG. 16. BuyOrder I is not “too executable,” as the MaxBuyPrice is now 3.00 (NBOprice of 2.65+0.35=3.00) The process then continues to step 1006, whereit combines the away market BBO book 25 a, the market maker quote book33 a, and the internal order book 29 a together in a virtualconsolidated order and quote list, which it ranks in price/display/timepriority, but with a preference for resident interest over away marketinterest at the same price level.

The virtual consolidated order and quote list looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Order F: Sell 10 @ 2.65 Order A: Buy 10 @2.50 Away Market C: Offer 30 @ 2.65 Away Market C: Bid 30 @ 2.50 AwayMarket A: Offer 30 @ 2.65 LMM: Bid 40 @ 2.45 Away Market B: Offer 20 @2.65 Away Market B: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Order B: Buy 10 @2.40 Away Market D: Offer 20 @ 2.70 Away Market A: Bid 50 @ 2.40 AwayMarket D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The process continues to step 1008, where it checks if this issue hasany assigned market makers. As it does, the process continues to step1010, where it checks if “incoming” Buy Order I is a directed order ornot. It should be noted that once an order is posted, it is nevertreated as a directed order again, even if it was originally sent as adirected order. As Buy Order I is not a directed order, the processcontinues to step 1012, to initiate the “LMM Guaranteed Offer Process.”However, as the LMM Offer is not replenished in any of the examples ofthis document for ease of illustration, the process continues to step1016 instead.

Uncapped Stand-Your-Ground Inside Limit Buy Order Matches Posted SellOrder

In step 1016, the process retrieves the best offer in the virtualconsolidated order and quote list, which is posted Sell Order F. In step1018, the process checks if “incoming” Buy Order 1's price (2.70) isgreater than or equal to posted Sell Order F's price (2.65). As BuyOrder I's price is higher, the process continues to step 1020, where itchecks if posted Sell Order F's price (2.65) is at the NBO (2.65). AsSell Order F is at the NBO, the process continues to step 1022, where itchecks if posted Sell Order F is on or off the market center 20. As itis a resident book order, the process bypasses step 1026 and continuesto step 1028, where it matches 10 contracts of Buy Order I againstposted Sell Order F, at the NBO price of 2.65. Posted Sell Order F iscompletely depleted and is removed from the books.

The NBBO is now 2.50 to 2.65 (70×80)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Away Market C: Offer 30 @ 2.65 Order A:Buy 10 @ 2.50 Away Market A: Offer 30 @ 2.65 Away Market C: Bid 30 @2.50 Away Market B: Offer 20 @ 2.65 LMM: Bid 40 @ 2.45 MM2: Offer 30 @2.70 Away Market B: Bid 40 @ 2.45 Away Market D: Offer 20 @ 2.70 OrderB: Buy 10 @ 2.40 Away Market A: Bid 50 @ 2.40 Away Market D: Bid 20 @2.40 Order C: Buy 10 @ 2.35

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order C: Buy10 @ 2.35The market center BBO is now 2.50 to 2.70 (40×30)

The public order book looks like this:

Bids Offers 40 @ 2.50 30 @ 2.70 40 @ 2.45 10 @ 2.40 10 @ 2.35

The process bypasses step 1030 and continues to step 1032, where itchecks if incoming Buy Order I still has any quantity available totrade. As it still has 90 contracts remaining, the process returns tostep 1016 and retrieves the best offer in the virtual consolidated orderand quote list, which is Away Market C's offer. In step 1018, theprocess checks if incoming Buy Order I's price (2.70) is greater than orequal to Away Market C's offer (2.65). As incoming Buy Order I's priceis higher, the process continues to step 1020, where it checks if AwayMarket C's offer (2.65) is at the NBO (2.65). As it is indeed at theNBO, the process continues to step 1022, where it checks if Away MarketC's offer is on or off the market center 20. As it is an away marketquote, the process continues to step 1024.

Uncapped Stand-Your-Ground Inside Limit Buy Order Routes to the BestAway Market Offer

The process continues to step 1024, where it allows the Routing Processto determine the highest-ranking eligible away market at the NBO. Inthis example, the Routing Process determines that Away Markets A, B, andC are eligible away markets, but Away Market C has the highest priorityfor routing, Away Market A has the second-highest priority for routing,and Away Market B has the third-highest priority for routing. As noprior orders have been routed to Away Market C in this example, theprocess satisfies its full disseminated offer size by routing 30contracts to Away Market C, at the NBO price of 2.65.

After routing to Away Market C, the process continues to step 1032,where it checks if incoming Buy Order I has any quantity still availableto trade. As it still has 60 contracts remaining, the process returns tostep 1016, where it retrieves the best offer in the virtual consolidatedorder and quote list. As Away Market C's offer has been completelysatisfied, the best offer is now Away Market A's offer. In step 1018,the process checks if incoming Buy Order 1's price (2.70) is greaterthan or equal to Away Market A's offer (2.65). As Buy Order I's price ishigher, the process continues to step 1020, where it checks if AwayMarket A's offer (2.65) is at the NBO (2.65). As it is indeed at theNBO, the process continues to step 1022, where it checks if Away MarketA's offer is on or off the market center 20. As it is an away marketquote, the process continues to step 1024.

Uncapped Stand-Your-Ground Inside Limit Buy Order Routes to theSecond-Best Away Market Offer

The process continues to step 1024, where the Routing Process determinesthat Away Market A is now eligible for routing. As no prior orders havebeen routed to Away Market A since it faded its offer price, the processsatisfies its full disseminated offer size by routing 30 contracts toAway Market A, at the NBO price of 2.65.

After routing to Away Market A, the process continues to step 1032,where it checks if incoming Buy Order I has any quantity still availableto trade. As it still has 30 contracts remaining, the process returns tostep 1016, where it retrieves the best offer in the virtual consolidatedorder and quote list, which is now Away Market B's offer. In step 1018,the process checks if Buy Order I's price (2.70) is greater than orequal to Away Market B's offer (2.65). As Buy Order I's price is higher,the process continues to step 1020, where it checks if Away Market B'soffer (2.65) is at the NBO (2.65). As it is indeed at the NBO, theprocess continues to step 1022, where it checks if Away Market B's offeris on or off the market center 20. As it is an away market quote, theprocess continues to step 1024.

Uncapped Stand-Your-Ground Inside Limit Buy Order Routes to theThird-Best Away Market Offer

The process continues to step 1024, where the Routing Process determinesthat Away Market B is now eligible for routing. As no prior orders havebeen routed to Away Market B since it faded its offer price, the processsatisfies its full disseminated offer size by routing 20 contracts toAway Market B, at the NBO price of 2.65.

After routing to Away Market B, the process continues to step 1032,where it checks if incoming Buy Order I has any quantity still availableto trade. As it still has 10 contracts remaining, the process returns tostep 1016, where it retrieves the best offer in the virtual consolidatedorder and quote list, which is now the MM2 Offer. In step 1018, theprocess checks if Buy Order 1's price (2.70) is greater than or equal tothe MM2 Offer (2.70). As the prices are equal, the process continues tostep 1020, where it checks if the MM2 Offer (2.70) is at the NBO (2.65).As the MM2 Offer price is inferior to the NBO, incoming Buy Order Icannot execute against it, as inside limit orders can only execute atthe NBBO by definition in this embodiment.

Uncapped Stand-Your-Ground Inside Limit Buy Order is Canned at the NewNBO, and Posted

The process continues to step 1040, where it “caps” the remainingquantity of Buy Order 1, at the NBO price of 2.65. As before, it doesthis by retaining incoming Buy Order 1's original limit price (2.70),but posting it at the NBO price (2.65) so that it locks, but does notcross, the NBO. The process continues to step 1042, where it ranks BuyOrder I in the Display Order Process of the internal order book 29 aaccording to its “capped” price of 2.65, and disseminates Buy Order I tothe public order book.

The NBBO is now 2.65 to 2.65 (10×80). The market is now locked.

The virtual consolidated order and quote list now looks like this:

Bids Offers Order I: Buy 10 @ 2.65 ← Away Market C: Offer 30 @ 2.65Original price = 2.70 MM2: Bid 30 @ 2.50 Away Market A: Offer 30 @ 2.65Order A: Buy 10 @ 2.50 Away Market B: Offer 20 @ 2.65 Away Market C: Bid30 @ 2.50 MM2: Offer 30 @ 2.70 LMM: Bid 40 @ 2.45 Away Market D: Offer20 @ 2.70 Away Market B: Bid 40 @ 2.45 Order B: Buy 10 @ 2.40 AwayMarket A: Bid 50 @ 2.40 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @2.35

The internal order book 29 a now looks like this:

Bids Offers Order I: Buy 10 @ 2.65 ← Original price = 2.70 Order A: Buy10 @ 2.50 Order B: Buy 10 @ 2.40 Order C: Buy 10 @ 2.35The market center BBO is now 2.65 to 2.70 (10×30)

The public order book now looks like this:

Bids Offers 10 @ 2.65 30 @ 2.70 40 @ 2.50 40 @ 2.45 10 @ 2.40 10 @ 2.35

The virtual consolidated order and quote list is deleted from localmemory.

Away Markets Fill the Routed Orders, but the Posted Stand-Your-GroundInside Limit Buy Order does not Ship

Away Markets C, A, and B fill the orders routed to them

Posted Buy Order I does not route additional contracts to them. If theNBO moves away again (to the price of 2.70) before posted Buy Order Iexecutes against an incoming marketable sell order, then the processwill remove Buy Order I's cap once again and treat it as a new incomingorder. The uncapped order will be allowed to execute at its originallimit price of 2.70.

Sweep Limit Orders

A sweep limit order is similar to an inside limit order in that itcannot route to an away market off the NBBO. But unlike an inside limitorder, in this embodiment, an incoming sweep limit ordercontemporaneously executes with book orders priced at one tick inferiorto the NBBO, as allowed by marketplace rules (e.g., the trade-and-shipexception). If marketplace rules also allow market maker quotes toexecute at one tick inferior to the NBBO, then an incoming sweep limitorder will also execute with such market maker quotes. For example, anincoming sweep limit sell order that is priced better (lower) than theNBB would execute in the sequence shown below:

Bid Side of the Virtual Consolidated Order, and Quote List. DisplayPrice Order Routing Point Process Working Order Process ProcessHighest 1. Displayed 2. Reserve 3. Passive 4. Discretionary 5. Tracking6. Away Price orders and order Liquidity Orders that can LiquidityMarket (NBB) quotes at the quantity at the Orders at the step up to theOrders at the Bids at the NBB NBB NBB NBB NBB NBB 2nd - 7. Displayed 8.Reserve 9. Passive 10. Discretionary highest orders (and order LiquidityOrders that can price quotes, if quantity at Orders at step up to thepoint allowed) at the NBB the NBB NBB less one tick (NBB the NBB lessless one less one less one one tick tick tick tick)

An incoming sweep limit order that cannot execute when it is received isimmediately posted at its user-specified limit price. The nonmarketablesweep limit order is inserted in the internal order book 29 a and rankedaccording to price/time priority in the Display Order Process. The orderis also disseminated to the public order book. Posted customer sweeplimit orders that are priced at the NBBO are eligible to execute againstincoming marketable orders in the LMM Guarantee Process or the DirectedOrder Process, like any other displayed order type, if they have timepriority over the eligible market maker quote.

An incoming sweep limit order that is marketable at the opposite side ofthe NBBO will participate in the LMM Guarantee Process if the leadmarket maker is quoting at the opposite side of the NBBO. Similarly, ifthe business rules of the market center 20 allow sweep limit orders tobe directed to a specific market maker, then an incoming sweep limitorder that is executable at the opposite side of the NBBO willparticipate in the Directed Order Process if the designated market makeris quoting at the opposite side of the NBBO.

After executing contemporaneously with orders (and market maker quotes,if allowed) priced at one tick inferior to the NBBO, if a sweep limitorder's price would cross the NBBO if it were to be posted, it isautomatically capped at the opposite side of the NBBO before it isposted, i.e., the order will lock the market but it will not cross themarket. The remaining portion of the sweep limit order is inserted inthe Display Order Process of the internal order book 29 a and is rankedaccording to the price/time priority of its current (capped) displayedprice. The order is also disseminated to the public order book at itscurrent (capped) displayed price. The process stores the originaluser-specified price so that the order can subsequently be repriced moreaggressively if the NBBO moves away. As the quote engine 23 a notifiesthe order matching engine 21 whenever a disseminated best bid or offerquote price touches any order price, whether displayed or not, in thisembodiment, and this may increase the processing overhead, sweep limitorders are subject to the check for excessive marketability when theyare first received to ensure that their original prices are not too farthrough the NBBO.

Once posted, a sweep limit order behaves in a manner that is similar toa posted stand-your-ground inside limit order. A sweep limit orderstands its ground if locked or crossed by an away market 24, and neitherreprices nor ships. Only when the NBBO moves away from the posted sweeplimit order does it reprice more aggressively to execute further.

If the NBBO moves away from the posted sweep limit order so that themarket is no longer locked, then the process removes the cap, and allowsthe order to revert to its original user-specified limit price. Therepriced order loses its standing in the internal order book 29 a and isprocessed as if it were a new incoming order. The order is allowed toexecute with all trading interest at the new NBBO price, and to executewith book orders (and market maker quotes, if allowed) at one tickinferior to the new NBBO price. After the sweep limit order can executeno further, if its price would still cross the market if it were to beposted, it is automatically capped at the opposite side of the new NBBObefore it is posted, locking the market again. This process continuesuntil the sweep limit order is depleted, or can be displayed at itsoriginal user-specified limit price without crossing the market. Oncethe sweep limit order is displayed at its original price, it is nevercapped again.

As described above, the unfilled portion of the sweep limit order is notrouted to the next price level until all the quotes at the current NBBOare exhausted and the away markets fade their quotes. This behavior isreferred to as “walking the book,” as each price level must be clearedbefore routing to the next price level. As each price level is cleared,the sweep limit order can execute at an increasingly aggressive price.

Incoming Sweep Limit Buy Order Received Process

Referring now to FIGS. 12A-12B, the process is illustrated where theorder matching engine 21 receives an incoming sweep limit buy order. Inthis embodiment, a sweep limit buy order can route to away markets onlyif they are quoting at the NBO, but can contemporaneously match bookorders at a price that is one tick inferior to the NBO after all theaway markets at the NBO have been satisfied. Any remaining portion ofthe order is capped (repriced) at the NBO and posted, locking themarket. Once capped and posted, if the NBO subsequently moves away fromthe order's capped price, then the cap is removed and the order isallowed to execute further,

In step 1202, the process retrieves the NBO, and in step 1204, theprocess determines if the incoming sweep limit buy order is marketable.If the process determines that the incoming sweep limit buy order ismarketable, then the process continues to step 1205, where it initiatesthe “Too-Executable Buy Order Check Process,” and proceeds to step 1600in FIG. 16. If the incoming buy order is not canceled in theToo-Executable Buy Order Check Process, i.e., it is not determined to betoo executable, then the process continues to step 1206, where itcreates a virtual consolidated order and quote list for the optionseries.

The process continues to step 1208, where it checks if the option serieshas any assigned market makers. If it does, then the process continuesto step 1210, where it checks if the incoming sweep limit buy order is adirected order or not. If the incoming sweep limit buy order is adirected order, then the process continues to step 1214 where the“Directed Order Process” is initiated in step 2000 in FIG. 20A. If,however, the incoming sweep limit buy order is not a directed order,then the process proceeds to step 1212 where the “LMM Guaranteed OfferProcess” is initiated instead in step 1900 in FIG. 19.

Regardless of whether the incoming sweep limit buy order executes in theDirected Order Process, in the LMM Guaranteed Offer Process, or inneither process (if the applicable market maker is not quoting at theNBO and is therefore ineligible for a guaranteed entitlement, or else ifthe issue does not have any assigned market makers), if the incomingsweep limit buy order still has quantity available to trade, then theprocess continues to step 1216, where it retrieves the best offer in thevirtual consolidated order and quote list, i.e., the sell order, marketmaker quote, or disseminated away market quote with the highest ranking.In step 1218, the process checks if the incoming sweep limit buy orderis still marketable (by way of explanation, it is possible that it is nolonger marketable if the quotes and orders at the NBO were exhausted).

At step 1218, if the process determines that the incoming sweep limitbuy order is still marketable, then it continues to step 1220, where itchecks if the retrieved best offer is at the NBO. If the retrieved bestoffer is at the NBO, then the process continues to step 1222, where itchecks if the retrieved best offer is on or off the market center 20. Ifthe retrieved best offer is on the market center 20, then the processcontinues to step 1226, where if the retrieved best offer is a marketmaker quote, the process automatically generates an IOC sellpseudo-order on behalf of the underlying market maker quote. The processcontinues to step 1228, where it matches the incoming sweep limit buyorder against the retrieved sell order or pseudo-order, at the NBOprice. If the matched sell order is a pseudo-order, then in step 1230,the process notifies the market maker quote engine 32 b of the quantitythat was executed so that the market maker quote engine 32 b candecrement the underlying market maker quote.

The process continues to step 1232, where it checks if the incomingsweep limit buy order still has quantity available to trade. If it doesnot, then the process continues to step 1250, where it terminates asindicated. If, however, the incoming sweep limit buy order does stillhave remaining quantity, then the process returns to step 1216, where itretrieves the next-best offer in the virtual consolidated order andquote list and continues to step 1218, where it checks if the incomingsweep limit buy order is still marketable. The process continues toexecute the incoming sweep limit buy order against all resident tradinginterest at the NBO as described above, until the incoming sweep limitbuy order is depleted, or else until the retrieved best offer is an awaymarket quote, as described next.

Returning to step 1222, if, however, the retrieved best offer is an awaymarket quote, then in step 1224, the process releases the incoming sweeplimit buy order to the Routing Process, which routes to thehighest-ranking away market as appropriate, up to its disseminated offersize, at the NBO price. After routing to the away market, the processcontinues to step 1232, where it checks if the incoming sweep limit buyorder still has quantity available to trade. If the order is depleted,then the process terminates in step 1250 as indicated. If, however, theorder still has remaining quantity, then the process returns to step1216, where it retrieves the next best offer, and if the retrieved bestoffer is at the NBO, routes to the next-highest ranking away marketaccording to the steps just described.

Returning to step 1220, if the retrieved best offer is inferior to theNBO, then the process continues to step 1238, where it checks if thereare any resting sell orders that can execute at one tick inferior to theNBO. If there are sell orders that can execute at one tick inferior tothe NBO, then in step 1240, the process executes the incoming sweeplimit buy order against each resting sell order, in the sequence oftheir ranking in the virtual consolidated order and quote list. In step1242, the process checks if the incoming sweep limit buy order still hasquantity available to trade after matching all sell orders priced at onetick inferior to the NBO. If the incoming buy order was depleted, thenthe process terminates in step 1250 as indicated. If, however, theincoming sweep limit buy order still has quantity available to trade,then the process continues to step 1244.

In step 1244, the process caps the incoming sweep limit buy order'sprice at the NBO so that it locks, but does not cross, the market. Theprocess then continues to step 1246, where it ranks the order in theDisplay Order Process of the internal order book 29 a according to theprice/time priority of its current price (the NBO), and disseminates theorder to the public order book.

Continuing to step 1248, if the quote engine 23 a notifies the ordermatching engine 21 that the NBO price has moved higher while the cappedsweep limit buy order is posted, then the capped order can executefurther. The process removes the cap, allows the sweep limit buy orderto revert to its original user-specified limit price, and processes itas if it were a new incoming order. Accordingly, the process returns tostep 1202, and the sweep limit buy order is allowed to execute furtherat its more aggressive price. After executing all trading interest atthe new NBO price and the eligible sell orders priced at one tickinferior to the new NBO price, if the sweep limit buy order still hasquantity remaining, then at step 1244, the process caps the order at thenew NBO, and posts it at its new, more aggressive price in step 1246.This process is repeated until the sweep limit buy order is depleted, orelse the NBO moves away to the extent to which the order can be postedat its original user-specified price. Once the order is posted at itsoriginal user-specified limit price, it is never capped again. Theprocess then terminates in step 1250 as indicated.

Returning to step 1204, if, however, the incoming sweep limit buy orderwas never marketable, then the process continues to step 1234, where itranks the order in the Display Order Process of the internal order book29 a according to price/time priority, and disseminates the order to thepublic order book. As the nonmarketable order is ranked at its originallimit price, it is not affected when the NBO changes. The process thenterminates in step 1236 as indicated.

Returning to step 1218, if, however, the incoming sweep limit buy orderis no longer marketable, then the process continues to step 1234 and1236 as just described. Incoming Sweep Limit Sell Order Received Process

Referring now to FIGS. 13A-13B, the process is illustrated where theorder matching engine 21 receives an incoming sweep limit sell order.This routine is very similar to the process described above in FIGS.12A-12B for receiving an incoming sweep limit buy order.

In step 1302, the process retrieves the NBB, and in step 1304, theprocess determines if the incoming sweep limit sell order is marketable.If the process determines that the incoming sweep limit sell order ismarketable, then the process continues to step 1305, where it initiatesthe “Too-Executable Sell Order Check Process,” and proceeds to step 1700in FIG. 17. If the incoming sell order is not canceled in theToo-Executable Sell Order Check Process, i.e., it is not determined tobe too executable, then the process continues to step 1306, where itcreates a virtual consolidated order and quote list for the optionseries.

The process continues to step 1308, where it checks if the option serieshas any assigned market makers. If it does, then the process continuesto step 1310, where it checks if the incoming sweep limit sell order isa directed order or not. If the incoming sweep limit sell order is adirected order, then the process continues to step 1314 where the“Directed Order Process” is initiated in step 2000 in FIG. 20A. If,however, the incoming sweep limit sell order is not a directed order,then the process proceeds to step 1312 where the “LMM Guaranteed BidProcess” is initiated instead in step 1800 in FIG. 18.

Regardless of whether the incoming sweep limit sell order executes inthe Directed Order Process, in the LMM Guaranteed Bid Process, or inneither process (if the applicable market maker is not quoting at theNBB and is therefore ineligible for a guaranteed entitlement, or else ifthe issue does not have any assigned market makers), if the incomingsweep limit sell order still has quantity available to trade, then theprocess continues to step 1316, where it retrieves the best bid in thevirtual consolidated order and quote list, i.e., the buy order, marketmaker quote, or disseminated away market quote with the highest ranking.In step 1318, the process checks if the incoming sweep limit sell orderis still marketable (by way of explanation, it is possible that it is nolonger marketable if the quotes and orders at the NBB were exhausted).

At step 1318, if the process determines that the incoming sweep limitsell order is still marketable, then it continues to step 1320, where itchecks if the retrieved best bid is at the NBB. If the retrieved bestbid is at the NBB, then the process continues to step 1322, where itchecks if the retrieved best bid is on or off the market center 20. Ifthe retrieved best bid is on the market center 20, then the processcontinues to step 1326, where if the retrieved best bid is a marketmaker quote, the process automatically generates an IOC buy pseudo-orderon behalf of the underlying market maker quote. The process continues tostep 1328, where it matches the incoming sweep limit sell order againstthe retrieved buy order or pseudo-order, at the NBB price. If thematched buy order is a pseudo-order, then in step 1330, the processnotifies the market maker quote engine 32 b of the quantity that wasexecuted so that the market maker quote engine 32 b can decrement theunderlying market maker quote.

The process continues to step 1332, where it checks if the incomingsweep limit sell order still has quantity available to trade. If it doesnot, then the process continues to step 1350, where it terminates asindicated. If, however, the incoming sweep limit sell order does stillhave remaining quantity, then the process returns to step 1316, where itretrieves the next-best bid in the virtual consolidated order and quotelist and continues to step 1318, where it checks if the incoming sweeplimit sell order is still marketable. The process continues to executethe incoming sweep limit sell order against all resident tradinginterest at the NBB as described above, until the incoming sweep limitsell order is depleted, or else until the retrieved best bid is an awaymarket quote, as described next.

Returning to step 1322, if, however, the retrieved best bid is an awaymarket quote, then in step 1324, the process releases the incoming sweeplimit sell order to the Routing Process, which routes to thehighest-ranking away market as appropriate, up to its disseminated Bidsize, at the NBB price. After routing to the away market, the processcontinues to step 1332, where it checks if the incoming sweep limit sellorder still has quantity available to trade. If the order is depleted,then the process terminates in step 1350 as indicated. If, however, theorder still has remaining quantity, then the process returns to step1316, where it retrieves the next best bid, and if the retrieved bestbid is at the NBB, routes to the next-highest ranking away marketaccording to the steps just described.

Returning to step 1320, if the retrieved best bid is inferior to theNBB, then the process continues to step 1338, where it checks if thereare any resting buy orders that can execute at one tick inferior to theNBB. If there are buy orders that can execute at one tick inferior tothe NBB, then in step 1340, the process executes the incoming sweeplimit sell order against each resting buy order, in the sequence oftheir ranking in the virtual consolidated order and quote list. In step1342, the process checks if the incoming sweep limit sell order stillhas quantity available to trade after matching all buy orders priced atone tick inferior to the NBB. If the incoming sell order was depleted,then the process terminates in step 1350 as indicated. If, however, theincoming sweep limit sell order still has quantity available to trade,then the process continues to step 1344.

In step 1344, the process caps the incoming sweep limit sell order'sprice at the NBB so that it locks, but does not cross, the market. Theprocess then continues to step 1346, where it ranks the order in theDisplay Order Process of the internal order book 29 a according to theprice/time priority of its current price (the NBB), and disseminates theorder to the public order book.

Continuing to step 1348, if the quote engine 23 a notifies the ordermatching engine 21 that the NBB price has moved lower while the cappedsweep limit sell order is posted, then the capped order can executefurther. The process removes the cap, allows the sweep limit sell orderto revert to its original user-specified limit price, and processes itas if it were a new incoming order. Accordingly, the process returns tostep 1302, and the sweep limit sell order is allowed to execute furtherat its more aggressive price. After executing all trading interest atthe new NBB price and the eligible buy orders priced at one tickinferior to the new NBB price, if the sweep limit sell order still hasquantity remaining, then at step 1344, the process caps the order at thenew NBB, and posts it at its new, more aggressive price in step 1346.This process is repeated until the sweep limit sell order is depleted,or else the NBB moves away to the extent to which the order can beposted at its original user-specified price. Once the order is posted atits original user-specified limit price, it is never capped again. Theprocess then terminates in step 1350 as indicated.

Returning to step 1304, if, however, the incoming sweep limit sell orderwas never marketable, then the process continues to step 1334, where itranks the order in the Display Order Process of the internal order book29 a according to price/time priority, and disseminates the order to thepublic order book. As the nonmarketable order is ranked at its originallimit price, it is not affected when the NBB changes. The process thenterminates in step 1336 as indicated.

Returning to step 1318, if, however, the incoming sweep limit sell orderis no longer marketable, then the process continues to step 1334 and1336 as just described.

Sweep Limit Order Trading Example

In this example, the issue has an assigned lead market maker (LMM) thatis quoting at the NBO when a marketable incoming sweep limit buy orderis received. The sweep limit buy order executes in the LMM GuaranteedOffer Process and the Display Order Process and then routes to the awaymarket at the NBO. After routing at the NBO, the order contemporaneouslyexecutes with a posted sell order whose price is one tick inferior tothe NBO. The remaining portion of the sweep limit buy order is repricedless aggressively so that it locks, but does not cross, the NBO. Whenthe NBO moves away from the posted sweep limit order, the order revertsto its user-specified price, routes again, executes contemporaneouslywith a posted sell order whose price is one tick inferior to the newNBO, and the remaining portion of the sweep limit buy order isautomatically repriced and posted at the new, more aggressive NBO price.

The NBBO is 2.50 to 2.60 (70×110).

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60Away Market B: Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.65 Away MarketA: Bid 50 @ 2.40 Away Market C: Offer 30 @ 2.70 Away Market D: Bid 20 @2.40 Away Market D: Offer 20 @ 2.70

The market maker quote book 33 a looks like this:

Bids Offers MM2: Bid 30 @ 2.50 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.45MM2: Offer 30 @ 2.70

The internal order book 29 a looks like this. Order D is on behalf of acustomer, whereas Order E is not:

Bids Offers Order A: Buy 10 @ 2.50 Order D: Sell 10 @ 2.60 Order B: Buy10 @ 2.40 Order E: Sell 10 @ 2.60 Order C: Buy 10 @ 2.35 Order F: Sell10 @ 2.65 Order X: Sell 10 @ 2.70The market center BBO is 2.50 to 2.60 (40×60)

The public order book looks like this:

Bids Offers 40 @ 2.50 60 @ 2.60 40 @ 2.45 10 @ 2.65 10 @ 2.40 40 @ 2.7010 @ 2.35Incoming Marketable Sweep Limit Buy Order is Received

In step 1200, the order matching engine 21 receives the following order:

Order J: Buy 170 @ 2.70, Sweep Limit

In step 1202, the process retrieves the NBO (2.60). In step 1204, theprocess checks if incoming Buy Order J is marketable, i.e., is priced ator better than the NBO. As it is, the process continues to step 1205,where it initiates the “Too-Executable Buy Order Check Process,” andproceeds to step 1600 in FIG. 16.

In step 1602, the process checks if incoming Buy Order J's price (2.70)is higher than the NBO (2.60). As it is, the process continues to step1604, where it checks if sweep limit orders should be checked forexcessive marketability. As the check for excessive marketability isenabled for sweep limit orders in this embodiment, the process continuesto step 1608, where it retrieves the “MaxPercentOffNBBO” parameter,which is configured to 15% in this example. In step 1610, the processcomputes the MaxPriceThruNBO by multiplying the NBO (2.60) by theMaxPercentOffNBBO (15%), deriving the MaxPriceThruNBO=0.39 (15% of2.60=0.39). As the tick for this issue is 0.05, the process rounds theMaxPriceThruNBO down to 0.35. In step 1612, the process computes theMaxBuyPrice by adding the derived MaxPriceThruNBO (0.35) to the NBO(2.60), deriving the MaxBuyPrice of 2.95 (2.60+0.35=2.95). Accordingly,the highest price allowable for incoming Buy Order J is 2.95. Theprocess continues to step 1614, where it checks if incoming Buy OrderJ's price (2.70) is higher than the MaxBuyPrice (2.95). As it is nothigher, incoming Buy Order J does not need to be repriced or canceled,and the process continues to step 1616, where it returns to the stepwhere it was originally invoked, back to step 1205.

The process continues to step 1206, where it combines the away marketBBO book 25 a, the market maker quote book 33 a, and the internal orderbook 29 a together in a virtual consolidated order and quote list, whichit ranks in price/display/time priority, but with a preference forresident interest over away market interest at the same price level. Inthis example, Sell Orders D and E were received before the LMM Offer wasquoted.

The virtual consolidated order and quote list looks like this:

Bids Offers. MM2: Bid 30 @ 2.50 Order D: Sell 10 @ 2.60 Order A: Buy 10@ 2.50 Order E: Sell 10 @ 2.60 Away Market C: Bid 30 @ 2.50 LMM: Offer40 @ 2.60 LMM: Bid 40 @ 2.45 Away Market A: Offer 50 @ 2.60 Away MarketB: Bid 40 @ 2.45 Order F: Sell 10 @ 2.65 Order B: Buy 10 @ 2.40 AwayMarket B: Offer 40 @ 2.65 Away Market A: Bid 50 @ 2.40 MM2: Offer 30 @2.70 Away Market D: Bid 20 @ 2.40 Order X: Sell 10 @ 2.70 Order C: Buy10 @ 2.35 Away Market C: Offer 30 @ 2.70 Away Market D: Offer 20 @ 2.70

The process continues to step 1208, where it checks if this issue hasany assigned market makers. As it does, the process continues to step1210, where it checks if incoming Buy Order J is a directed order ornot. As it is not a directed order, the process continues to step 1212,where it initiates the “LMM Guaranteed Offer Process,” and proceeds tostep 1900 in FIG. 19.

LMM Guarantee Process is in Effect for this Issue

In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In step1904, it checks if the LMM Offer is at the NBO (2.60). As it is, thelead market maker is entitled to guaranteed participation with incomingBuy Order J, after any superior displayed customer orders are executedfirst. The process continues to step 1908, where it checks if incomingBuy Order J's order size (170) is greater than two contracts. As it is,the process continues to step 1914.

Incoming Sweep Limit Buy Order Matches the Displayed Customer Sell Orderwith Time Priority Over the LMM Offer

In step 1914, the process checks if there are any customer sell ordersdisplayed at the NBO, and finds posted Sell Order D. The processcontinues to step 1916, where it stores the timestamp on the LMM Offerin the parameter “LMMOfferTimestamp.” In step 1918, the processretrieves the earliest displayed customer sell order at the NBO, SellOrder D, and in step 1920, the process compares the timestamp of postedSell Order D to the LMMOfferTimestamp. As posted Sell Order D wasreceived earlier than the LMM Offer, the process continues to step 1922,where it matches 10 contracts of incoming Buy Order J with posted SellOrder D, completely depleting posted Sell Order D and removing it fromthe books.

The process continues to step 1924, where it checks if incoming BuyOrder J still has quantity available to trade. As it still has 160contracts remaining, the process continues to step 1928, where it checksif there are any additional customer sell orders at the NBO. As thereare none (Sell Order E is not on behalf of a customer), the processcontinues to step 1932.

Incoming Sweep Limit Buy Order Matches the LMM Offer

In step 1932, the process retrieves the LMMGuaranteedPercent parameter,which is configured to 40% in this example. In step 1934, the processderives the LMMGuaranteedAllocation (64 contracts) by multiplying theLMMGuaranteedPercent (40%) by the remaining portion of incoming BuyOrder J (160 contracts). The LMMGuaranteedAllocation is the maximumquantity of contracts that can execute in the LMM Guarantee Process.

In step 1938, the process matches 40 contracts of incoming Buy Order Jagainst the LMM Offer, the lesser of the LMMGuaranteedAllocation (64contracts) and the LMM Offer size (40 contracts), at the NBO price of2.60. It does this by generating an IOC pseudo-order to Sell 40 @ 2.60on behalf of the LMM Offer, and executing incoming Buy Order 1 againstthe sell pseudo-order. The LMM Offer at 2.60 is completely depleted, andis removed from the virtual consolidated order and quote list. Theprocess notifies the market maker quote engine 32 b to decrement the LMMOffer by the 40 contracts executed. The LMM Guaranteed Offer Process hascompleted.

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Order E: Sell 10 @ 2.60 Order A: Buy 10 @2.50 Away Market A: Offer 50 @ 2.60 Away Market C: Bid 30 @ 2.50 OrderF: Sell 10 @ 2.65 LMM: Bid 40 @ 2.45 Away Market B: Offer 40 @ 2.65 AwayMarket B: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 Order B: Buy 10 @ 2.40Order X: Sell 10 @ 2.70 Away Market A: Bid 50 @ 2.40 Away Market C:Offer 30 @ 2.70 Away Market D: Bid 20 @ 2.40 Away Market D: Offer 20 @2.70 Order C: Buy 10 @ 2.35

The market maker quote engine 32 b decrements the LMM Offer by the 40contracts executed, completely depleting it. The market maker quote book33 a now looks like this (the lead market maker will manually replenishits offer, but this is not illustrated to simplify the example):

Bids Offers MM2: Bid 30 @ 2.50 MM2: Offer 30 @ 2.70 LMM: Bid 40 @ 2.45

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order E: Sell 10 @ 2.60 Order B: Buy10 @ 2.40 Order F: Sell 10 @ 2.65 Order C: Buy 10 @ 2.35 Order X: Sell10 @ 2.70The market center BBO is now 2.50 to 2.60 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.50 10 @ 2.60 40 @ 2.45 10 @ 2.65 10 @ 2.40 40 @ 2.7010 @ 2.35

The process continues to step 1942, where it checks if incoming BuyOrder J still has any quantity available to trade. As it still has 120contracts remaining, the process continues to step 1946, where itreturns to the step where the routine was originally invoked, back tostep 1212 of FIG. 12A.

Incoming Sweep Limit Buy Order Matches the Non-Customer Sell Order

The process continues to step 1216, where it retrieves the best offer inthe virtual consolidated order and quote list, which is posted SellOrder E. In step 1218, the process checks if incoming Buy Order J'sprice (2.70) is greater than or equal to posted Sell Order E's price(2.60). As incoming Buy Order J's price is higher, the process continuesto step 1220, where it checks if posted Sell Order E's price (2.60) isat the NBO (2.60). As Sell Order E is at the NBO, the process continuesto step 1222, where it checks if posted Sell Order E is on or off themarket center 20. As it is a resident book order, the process bypassesstep 1226 and continues to step 1228, where it matches 10 contracts ofincoming Buy Order J against posted Sell Order E, at the NBO price of2.60. Posted Sell Order E is completely depleted and is removed from thebooks.

The NBBO is now 2.50 to 2.60 (70×50)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60 Order A:Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Away Market C: Bid 30 @ 2.50 AwayMarket B: Offer 40 @ 2.65 LMM: Bid 40 @ 2.45 MM2: Offer 30 @ 2.70 AwayMarket B: Bid 40 @ 2.45 Order X: Sell 10 @ 2.70 Order B: Buy 10 @ 2.40Away Market C: Offer 30 @ 2.70 Away Market A: Bid 50 @ 2.40 Away MarketD: Offer 20 @ 2.70 Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order F: Sell 10 @ 2.65 Order B: Buy10 @ 2.40 Order X: Sell 10 @ 2.70 Order C: Buy 10 @ 2.35The market center BBO is now 2.50 to 2.65 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.50 10 @ 2.65 ← 40 @ 2.45 40 @ 2.70 10 @ 2.40 10 @2.35

The process bypasses step 1230 and continues to step 1232, where itchecks if incoming Buy Order J still has any quantity available totrade. As it still has 110 contracts remaining, the process returns tostep 1216 and retrieves the best offer in the virtual consolidated orderand quote list, which is Away Market A's offer. In step 1218, theprocess checks if incoming Buy Order J's price (2.70) is greater than orequal to Away Market A's offer (2.60). As incoming Buy Order J's priceis higher, the process continues to step 1220, where it checks if AwayMarket A's offer (2.60) is at the NBO (2.60). As it is indeed at theNBO, the process continues to step 1222, where it checks if Away MarketA's offer is on or off the market center 20. As it is an away marketquote, the process continues to step 1224.

Incoming Sweep Limit Buy Order Routes to the Best Away Market Offer

The process continues to step 1224, where it allows the Routing Processto determine the highest-ranking eligible away market at the NBO. AwayMarket A is alone at the NBO. As no prior orders have been routed toAway Market A in this example, the process satisfies its fulldisseminated offer size by routing 50 contracts to Away Market A, at theNBO price of 2.60.

After routing to Away Market A, the process continues to step 1232,where it checks if incoming Buy Order J has any quantity still availableto trade. As it still has 60 contracts remaining, the process returns tostep 1216, where it retrieves the best offer in the virtual consolidatedorder and quote list. As Away Market A's offer has been completelysatisfied, the best offer is now posted Sell Order F. In step 1218, theprocess checks if incoming Buy Order J's price (2.70) is greater than orequal to Sell Order F's price (2.65). As Buy Order J's price is higher,the process continues to step 1220, where it checks if Sell Order F isat the NBO. Sell Order F's price (2.65) is inferior to the NBO (2.60).

Incoming Sweep Limit Buy Order Executes with Sell Order Priced at OneTick Inferior to the NBO

The process continues to step 1238, where it checks if there are anysell orders that can execute at one tick inferior to the NBO (2.60). AsSell Order F's price (2.65) is one tick inferior, it is eligible toexecute. In step 1240, the process matches 10 contracts of incoming BuyOrder J against posted Sell Order F, at the price of 2.65, completelydepleting Sell Order F and removing it from the books.

The NBBO is still 2.50 to 2.60 (70×50)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Away Market A: Offer 50 @ 2.60 Order A:Buy 10 @ 2.50 Away Market B: Offer 40 @ 2.65 Away Market C: Bid 30 @2.50 MM2: Offer 30 @ 2.70 LMM: Bid 40 @ 2.45 Order X: Sell 10 @ 2.70Away Market B: Bid 40 @ 2.45 Away Market C: Offer 30 @ 2.70 Order B: Buy10 @ 2.40 Away Market D: Offer 20 @ 2.70 Away Market A: Bid 50 @ 2.40Away Market D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order X: Sell 10 @ 2.70 Order B: Buy10 @ 2.40 Order C: Buy 10 @ 2.35The market center BBO is now 2.50 to 2.70 (40×40)

Bids Offers 40 @ 2.50 40 @ 2.70 ← 40 @ 2.45 10 @ 2.40 10 @ 2.35

As there are no additional sell orders that can execute at the price of2.65, the process continues to step 1242, where it checks if incomingBuy Order J has any quantity available to trade. As it still has 50contracts remaining, the process continues to step 1244.

Incoming Sweep Limit Buy Order's Price is Capped at the NBO and Posted

In step 1244, the process “caps” incoming Buy Order J, at the NBO priceof 2.60. It does this by retaining incoming Buy Order J's original limitprice (2.70), but posting it at the NBO price (2.60) so that it locks,but does not cross, the NBO. The process continues to step 1246, whereit ranks Buy Order J in the Display Order Process of the internal orderbook 29 a according to its “capped” price of 2.60, and disseminates BuyOrder J to the public order book.

The NBBO is now 2.60 to 2.60 (50×90). The market is now locked.

The virtual consolidated order and quote list now looks like this:

Bids Offers Order J: Buy 50 @ 2.60 ← Away Market A: Offer 50 @ 2.60Original price = 2.70 MM2: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.65Order A: Buy 10 @ 2.50 MM2: Offer 30 @ 2.70 Away Market C: Bid 30 @ 2.50Order X: Sell 10 @ 2.70 LMM: Bid 40 @ 2.45 Away Market C: Offer 30 @2.70 Away Market B: Bid 40 @ 2.45 Away Market D: Offer 20 @ 2.70 OrderB: Buy 10 @ 2.40 Away Market A: Bid 50 @ 2.40 Away Market D: Bid 20 @2.40 Order C: Buy 10 @ 2.35

The internal order book 29 a now looks like this:

Bids Offers Order J: Buy 50 @ 2.60 E← Order X: Sell 10 @ 2.70 Originalprice = 2.70 Order A: Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order C: Buy10 @2.35The market center BBO is now 2.60 to 2.70 (50×40)

The public order book looks like this:

Bids Offers 50 @ 2.60 ← 40 @ 2.70← 40 @ 2.50 40 @ 2.45 10 @ 2.40 10 @2.35Away Market Fills the Routed Order, but the Posted Sweep Limit Buy Orderdoes not Route Additional QuantityAway Market A fills the 50 contracts routed to it

Unlike a reprice-and-ship inside limit order, which routes to an awaymarket that fills it so long as the away market and the posted order areboth still at the NBBO, in this embodiment, a sweep limit order does NOTship additional contracts to an away market in response to a fill.Accordingly, posted Buy Order J does not ship to Away Market A.

Away Market Fades its Offer Off the NBO

Away Market A fades its offer from the NBO

The NBBO is now 2.60 to 2.65·(50×40). The market is no longer locked.

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.65Away Market B: Bid 40 @ 2.45 Away Market C: Offer 30 @ 2.70 Away MarketA: Bid 50 @ 2.40 Away Market D: Offer 20 @ 2.70 Away Market D: Bid 20 @2.40 Away Market A: Offer 50 @ 2.70←

The quote engine 23 a notifies the order matching engine 21 of thechange to Away Market A's offer and the change to the NBO. As describedin step 1248, as the NBO price has moved higher (it was previously 2.60,but is now 2.65), the process removes the cap from posted Buy Order J,allowing it to revert to its original order price of 2.70, and processesit as if it were a new incoming order, removing it from the books.

Posted Sweep Limit Buy Order's Cap is Removed, and the RemainingQuantity is Processed Like a New Incoming Order

In step 1202, the process retrieves the NBO (2.65). In step 1204, itchecks if “incoming” Buy Order J's price (2.70, its original price) ismarketable, i.e., is at or better than the NBO (2.65). As it is, theprocess continues to step 1205, where it initiates the “Too-ExecutableBuy Order Check Process,” and proceeds to step 1600 in FIG. 16. BuyOrder J is not “too executable,” as the MaxBuyPrice is now 3.00 (NBOprice of 2.65+0.35=3.00). The process continues to step 1206, where itcombines the away market BBO book 25 a, the market maker quote book 33a, and the internal order book 29 a together in a virtual consolidatedorder and quote list, which it ranks in price/display/time priority, butwith a preference for resident interest over away market interest at thesame price level.

The virtual consolidated order and quote list looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.65 Order A:Buy 10 @ 2.50 MM2: Offer 30 @ 2.70 Away Market C: Bid 30 @ 2.50 Order X:Sell 10 @ 2.70 LMM: Bid 40 @ 2.45 Away Market C: Offer 30 @ 2.70 AwayMarket B: Bid 40 @ 2.45 Away Market D: Offer 20 @ 2.70 Order B: Buy 10 @2.40 Away Market A: Offer 50 @ 2.70 ← Away Market A: Bid 50 @ 2.40 AwayMarket D: Bid 20 @ 2.40 Order C: Buy 10 @ 2.35

The process continues to step 1208, where it checks if this issue hasany assigned market makers. As it does, the process continues to step1210, where it checks if “incoming” Buy Order J is a directed order ornot. It should be noted that once an order is posted, it is nevertreated as a directed order again, even if it was originally sent as adirected order. As Buy Order J is not a directed order, the processcontinues to step 1212, to initiate the “LMM Guaranteed Offer Process.”However, as the LMM Offer is not replenished in any of the examples ofthis document for ease of illustration, the process continues to step1216 instead.

Uncapped Sweep Limit Buy Order Routes to an Away Market

In step 1216, the process retrieves the best offer in the virtualconsolidated order and quote list, which is Away Market B's offer. Instep 1218, the process checks if “incoming” Buy Order J's price (2.70)is greater than or equal to Away Market B's offer (2.65). As Buy OrderJ's price is higher, the process continues to step 1220, where it checksif Away Market B's offer (2.65) is at the NBO (2.65). As it is at theNBO, the process continues to step 1222, where it checks if Away MarketB's offer is on or off the market center 20. As it is an away marketquote, the process continues to step 1224, where it routes 40 contractsto Away Market B at the NBO price of 2.65.

The process then continues to step 1232, where it checks if Buy Order Jstill has any quantity available to trade. As it still has 10 contractsremaining, the process returns to step 1216, where it retrieves the bestoffer, which is now the MM2 Offer since Away Market B's offer wascompletely satisfied. In step 1218, the process checks if Buy Order J'sprice (2.70) is greater than or equal to the MM2 Offer price (2.70). Instep 1220, if checks if the MM2 Offer is at the NBO. As the MM2 Offer(2.70) is inferior to the NBO (2.65), the process continues to step1238.

Uncapped Sweep Limit Buy Order Executes with Sell Order Priced at OneTick Inferior to the NBO

The process continues to step 1238, where it checks if there are anyresting sell orders that can execute at the NBO (2.65) plus one tick. AsSell Order X (2.70) is priced at one tick inferior to the NBO, theprocess continues to step 1240, where it matches the remaining 10contracts of Buy Order J against posted Sell Order X, at the price of2.70, completely depleting both orders. Sell Order X is removed from thebooks.

The NBBO is still 2.50 to 2.65 (70×40)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.50 Away Market B: Offer 40 @ 2.65 Order A:Buy 10 @ 2.50 MM2: Offer 30 @ 2.70 Away Market C: Bid 30 @ 2.50 AwayMarket C: Offer 30 @ 2.70 LMM: Bid 40 @ 2.45 Away Market D: Offer 20 @2.70 Away Market B: Bid 40 @ 2.45 Away Market A: Offer 50 @ 2.70 OrderB: Buy 10 @ 2.40 Away Market A: Bid 50 @ 2.40 Away Market D: Bid 20 @2.40 Order C: Buy 10 @ 2.35

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.50 Order B: Buy 10 @ 2.40 Order C: Buy10 @ 2.35The market center BBO is now 2.50 to 2.70 (40×30)

The public order book looks like this:

Bids Offers 40 @ 2.50 30 @ 2.70← 40 @ 2.45 10 @ 2.40 10 @ 2.35

The process continues to step 1242, where it checks if incoming BuyOrder J has any quantity available to trade. As it does not, the processterminates in step 1250 as indicated. The virtual consolidated order andquote list is deleted from local memory. Away Market B fills the 40contracts routed to it. Buy Order J is completely matched.

It should be noted that if marketplace rules allow market maker quotesto contemporaneously execute at one tick inferior to the NBO, then theMM2 offer would have executed instead of Sell Order X, as it has timepriority at the price of 2.70. The process would have generated a sellpseudo-order on behalf of the MM2 offer, executed incoming Buy Order Jagainst the pseudo-order, and then notified the market maker quoteengine 32 b to decrement the MM2 offer by 10 contracts.

Intermarket Sweep Limit Orders

An intermarket sweep limit order will execute contemporaneously with alltrading interest on and off the market center 20, routing to multipleaway markets 24 at multiple price levels. Although the obligation toeach price level must be satisfied before proceeding to the next-bestprice level, the process does not need to wait for the disseminated NBBOto move away before routing to inferior price levels. An intermarketsweep limit order will execute at as many price levels as are allowed bythe rules of the order type and the marketplace.

If the marketplace allows intermarket sweeping but imposes a cap on thenumber of price levels that can be routed to contemporaneously, then thecap is stored as a parameter in the Routing Process. For example, ifintermarket sweep limit orders are allowed to route up to two minimumprice increments (ticks) inferior to the NBBO and the minimum priceincrement for the issue is a penny, then an incoming intermarket sweeplimit buy order can contemporaneously route to away markets whosedisseminated offers are as high as the NBO plus two cents, whereas anincoming intermarket sweep limit sell order can contemporaneously routeto away markets whose disseminated bids are as low as the NBB less twocents. The incoming sweep limit order can execute with resident tradinginterest at as many price levels as possible, so long as the executiondoes not trade through an away market.

For example, an incoming intermarket sweep limit sell order that ispriced through the NBB by four or more ticks would execute in thesequence shown below if intermarket sweeping is capped at two ticksinferior to the NBBO, and no away market is quoting at three ticksinferior to the NBBO:

Bid Side of the Virtual Consolidated Order, and Quote List. DisplayPrice Order Routing Point Process Working Order Process ProcessHighest 1. Displayed 2. Reserve 3. Passive 4. Discretionary 5. Tracking6. Away Price orders and order Liquidity Orders that can LiquidityMarket (NBB) quotes at the quantity at Orders at step up to the Ordersat the Bids at NBB the NBB the NBB NBB NBB the NBB 2nd - 7. Displayed 8.Reserve 9. Passive 10. Discretionary 11. Away highest orders and orderLiquidity Orders that can Market price quotes at the quantity at Ordersat step up to the Bids at point NBB the NBB the NBB NBB the NBB less onetick less one less one less one tick less one tick tick tick 3rd - 12.Displayed 13. Reserve 14. Passive 15. Discretionary 16. Away highestorders and order Liquidity Orders that can Market price quotes at thequantity at Orders at step up to the Bids at point NBB the NBB the NBBNBB the NBB less two ticks less two less two less two ticks less twoticks ticks ticks 4th - 17. Displayed 18. Reserve 19. Passive 20.Discretionary highest orders and order Liquidity Orders that can pricequotes at the quantity at Orders at step up to the point NBB the NBB theNBB NBB less three less three less three less three ticks ticks ticksticks 5th - 21. Displayed 22. Reserve 23. Passive 24. Discretionaryhighest orders and order Liquidity Orders that can price quotes at thequantity at Orders at step up to the point NBB the NBB the NBB NBB lessfour less four less four less four ticks ticks ticks ticks

If there is no cap on the number of price levels at which an intermarketsweep limit order can route to contemporaneously, then the processsimply executes the order until it is no longer marketable. Anyremaining nonmarketable portion of the order is displayed at itsoriginal user-specified limit price. If, however, a cap does exist onthe number of price levels at which an intermarket sweep limit order cancontemporaneously route, then the remaining quantity of the order iscapped at the last (most aggressive) price at which it routed, if theorder's price is superior to the last routed price. For example, if anintermarket sweep limit order is priced at four ticks through the NBBObut is only allowed to route up to two ticks beyond the NBBO, then itsremaining portion is capped at two ticks inferior to the NBBO anddisplayed at that price. The order is inserted in the Display OrderProcess of the internal order book 29 a and ranked according to theprice/time priority of its capped price. The order is also disseminatedto the public order book at its capped price. Accordingly, the postedorder crosses the NBBO, but only to the extent to which it does not lockthe price of any away market 24 that has not been fully satisfied.

Once posted, whether capped or not, an intermarket sweep limit orderstands it ground and does not route when an away market 24 locks orcrosses it. Similarly, once an intermarket sweep limit order hassatisfied its obligation to an away market 24, it does not routeadditional contracts when the away market fills the routed order.

If, however, the NBBO moves away from a capped intermarket sweep limitorder, then the process removes the cap, and allows the order to revertto its original user-specified limit price. The repriced order loses itsstanding in the internal order book 29 a and is processed as if it werea new incoming order. After the intermarket sweep limit order canexecute no further, if its price would still cross the marketexcessively, i.e., if it would lock the price of an away market that ithas not fully satisfied, then it is automatically capped again at thelast price at which it routed. This process continues until theintermarket sweep limit order is depleted, or else can be displayed atits original user-specified limit price without crossing the marketexcessively. Once the intermarket sweep limit order is displayed at itsoriginal user-specified price, it is never capped again.

Posted customer intermarket sweep limit orders that are priced at theNBBO (whether repriced or not) are eligible to execute against incomingmarketable orders in the LMM Guarantee Process or the Directed OrderProcess, like any other displayed order type, if they have time priorityover the eligible market maker quote.

An incoming intermarket sweep limit order that is executable at theopposite side of the NBBO will participate in the LMM Guarantee Processif the lead market maker is quoting at the opposite side of the NBBO.Similarly, if the business rules of the market center 20 allowintermarket sweep limit orders to be directed to a specific marketmaker, then an incoming intermarket sweep limit order that is executableat the opposite side of the NBBO will participate in the Directed OrderProcess if the designated market maker is quoting at the opposite sideof the NBBO.

Incoming Intermarket Sweep Limit Buy Order Received Process

Referring now to FIGS. 14A-14B, the process is illustrated where theorder matching engine 21 receives an incoming intermarket sweep limitbuy order. In this embodiment, an intermarket sweep limit buy order canexecute contemporaneously with as many price levels as are allowedaccording to the marketplace rules in effect. If there is a cap on thenumber of price levels at which the order can route, then aftersatisfying all away markets that are eligible to receive the routedorder, any remaining quantity immediately crosses the NBO, capped at thelast price at Which it routed. Once capped and posted, if the NBOsubsequently moves away to a higher price, then the cap is removed andthe order is allowed to execute further.

In step 1402, the process retrieves the NBO, and in step 1404, theprocess determines if the incoming intermarket sweep limit buy order ismarketable. If the process determines that the incoming intermarketsweep limit buy order is marketable, then the process continues to step1405, where it initiates the “Too-Executable Buy Order Check Process,”and proceeds to step 1600 in FIG. 16. If the incoming buy order is notcanceled in the “Too-Executable Buy Order Check Process,” i.e., it isnot determined to be too executable, then the process continues to step1406, where it creates a virtual consolidated order and quote list forthe option series.

The process continues to step 1408, where it checks if the option serieshas any assigned market makers. If it does, then the process continuesto step 1410, where it checks if the incoming intermarket sweep limitbuy order is a directed order or not. If the incoming intermarket sweeplimit buy order is a directed order, then the process continues to step1414 where the “Directed Order Process” is initiated in step 2000 inFIG. 20A. If, however, the incoming intermarket sweep limit buy order isnot a directed order, then the process proceeds to step 1412 where the“LMM Guaranteed Offer Process” is initiated instead in step 1900 in FIG.19.

Regardless of whether the incoming intermarket sweep limit buy orderexecutes in the Directed Order Process, in the LMM Guaranteed OfferProcess, or in neither process (if the applicable market maker is notquoting at the NBO and is therefore ineligible for a guaranteedentitlement, or else if the issue does not have any assigned marketmakers), if the incoming intermarket sweep limit buy order still hasquantity available to trade, then the process continues to step 1416,where it retrieves the best offer in the virtual consolidated order andquote list, i.e., the sell order, market maker quote, or disseminatedaway market quote with the highest ranking. In step 1418, the processchecks if the incoming intermarket sweep limit buy order is stillmarketable (by way of explanation, it is possible that it is no longermarketable if the quotes and orders at the NBO were exhausted).

At step 1418, if the process determines that the incoming intermarketsweep limit buy order is still marketable, then it continues to step1420, where it checks if the retrieved best offer is on or off themarket center 20. If the retrieved best offer is on the market center20, then the process continues to step 1422, where if the retrieved bestoffer is a market maker quote, the process automatically generates anIOC sell pseudo-order on behalf of the underlying market maker quote.The process continues to step 1424, where it matches the incomingintermarket sweep limit buy order against the retrieved sell order orpseudo-order, at the sell order's price. If the matched sell order is apseudo-order, then in step 1426, the process notifies the market makerquote engine 32 b of the quantity that was executed so that the marketmaker quote engine 32 b can decrement the underlying market maker quote.

The process continues to step 1428, where it checks if the incomingintermarket sweep limit buy order still has quantity available to trade.If it does not, then the process continues to step 1430, where itterminates as indicated. If, however, the incoming intermarket sweeplimit buy order does still have remaining quantity, then the processreturns to step 1416, where it retrieves the next-best offer in thevirtual consolidated order and quote list and continues to step 1418,where it checks if the incoming intermarket sweep limit buy order isstill marketable. The process continues to execute the incomingintermarket sweep limit buy order against all resident trading interestat the NBO as described above, until the incoming intermarket sweeplimit buy order is depleted, or else until the retrieved best offer isan away market quote, as described next.

Returning to step 1420, if the retrieved best offer is an away marketquote, then the process continues to step 1436, where it checks if thereis a cap on the number of price levels at which an intermarket sweeplimit order can contemporaneously route. If such a restriction doesexist, then the process continues to step 1438, where it retrieves thestored “Intermarket Sweep Cap” parameter from the Routing Process. Instep 1440, the process computes the maximum price at which theintermarket sweep limit buy order can route (“MaxPriceOffNBO”) by addinga price equivalent to the number of ticks specified in the retrieved“Intermarket Sweep Cap” parameter to the current NBO price. By way ofexample, if the minimum price increment for an issue is a nickel and theIntermarket Sweep Cap is set to ‘2,’ then the MaxPriceOffNBO is the NBOplus ten cents. If the minimum price increment for an issue is a pennyand the Intermarket Sweep Cap is set to ‘2,’ then the MaxPriceOffNBO isthe NBO plus two cents. In step 1442, the process checks if theretrieved away market offer price is higher than the derivedMaxPriceOffNBO. If the away market offer price is less than or equal tothe MaxPriceOffNBO, then it is eligible to receive a routed order, andthe process continues to step 1444, where the process releases theincoming intermarket sweep limit buy order to the Routing Process, whichroutes to the highest-ranking away market as appropriate, up to itsdisseminated offer size, at the disseminated offer price.

Returning to step 1436, if, however, there is no cap on the number ofprice levels at which an intermarket sweep limit order cancontemporaneously route, then the process also continues to step 1444.

After routing to the away market, the process continues to step 1428,where it checks if the incoming intermarket sweep limit buy order stillhas quantity available to trade. If the order is depleted, then theprocess terminates in step 1430 as indicated. If, however, the orderstill has remaining quantity, then it returns to step 1416, where itretrieves the next best offer, and if the incoming intermarket sweeplimit buy order is marketable against the next best offer, will continueto match the resident order or quote or route to the away market quote,as just described.

At each price level, the incoming intermarket sweep limit buy ordermatches the displayed trading interest, then matches the nondisplayed(“Working”) interest, then routes to the away market interest. Onlyafter all away markets at the current price level have been satisfieddoes the incoming intermarket sweep limit buy order proceed to executewith the trading interest at the next-best price level. The processrepeats these steps for each price level allowed, until the incomingintermarket sweep limit buy order is depleted, or until the retrievedbest offer is inferior to the MaxPriceOffNBO, as described next.

Returning to step 1442, if the away market's offer price is higher thanthe MaxPriceOffNBO, then the incoming intermarket sweep limit buy ordercannot route to it at the present time, and any remaining quantity mustbe posted. The process continues to step 1446, where it caps theincoming intermarket sweep limit buy order at the last price at which itrouted. The last routed price will cross the NBO, but only to the extentto which it locks the disseminated offer prices of all the away marketsthat the intermarket sweep limit buy order satisfied. Specifically, thecapped order will not lock the offer price of any away market where theobligation to the quote has not been fully satisfied. The processcontinues to step 1448, where it ranks the capped intermarket sweeplimit buy order in the internal order book 29 a in the Display OrderProcess according to the price/time priority of its capped price, i.e.,the last price at which it routed. The process also disseminates thecapped order to the public order book at its current (capped) price. Theposted intermarket sweep limit buy order crosses the market.

Continuing to step 1450, if the NBO price should move higher, then thecapped intermarket sweep limit buy order can execute further. Theprocess removes the cap, and allows the intermarket sweep limit buyorder to revert to its original user-specified limit price. The repricedorder loses its standing in the internal order book 29 a, and isprocessed as if it were a new incoming order. Accordingly, the processreturns to step 1402, and the intermarket sweep limit buy order isallowed to execute further at its more aggressive price. If the orderstill has quantity remaining but once again can execute no further, thenat step 1446, the process caps the order at the last price at which itrouted, and posts it again at step 1448. This process is repeated untilthe intermarket sweep limit buy order is depleted, or else the NBO movesaway to the extent to which the order can be posted at its originaluser-specified price. Once the order is posted at its originaluser-specified limit price, it is never capped again. The process thenterminates in step 1452 as indicated.

Returning to step 1404, if, however, the incoming intermarket sweeplimit buy order was never marketable, then the process continues to step1432, where it ranks the order in the Display Order Process of theinternal order book 29 a according to price/time priority, anddisseminates the order to the public order book. As the nonmarketableorder is ranked at its original limit price, it is not affected when theNBO changes. The process then terminates in step 1434 as indicated.

Returning to step 1418, if, however, the incoming intermarket sweeplimit buy order is no longer marketable, then the process continues tostep 1432 and 1434 as just described.

Incoming Intermarket Sweep Limit Sell Order Received Process

Referring now to FIGS. 15A-15B, the process is illustrated where theorder matching engine 21 receives an incoming intermarket sweep limitsell order. This routine is very similar to the process described abovein FIGS. 14A-14B for receiving an incoming intermarket sweep limit buyorder.

In step 1502, the process retrieves the NBB, and in step 1504, theprocess determines if the incoming intermarket sweep limit sell order ismarketable. If the process determines that the incoming intermarketsweep limit sell order is marketable, then the process continues to step1505, initiates the “Too-Executable Sell Order Check Process,” andproceeds to step 1700 in FIG. 17. If the incoming sell order is notcanceled in the “Too-Executable Sell Order Check Process,” i.e., it isnot determined to be too executable, then the process continues to step1506, where it creates a virtual consolidated order and quote list forthe option series.

The process continues to step 1508, where it checks if the option serieshas any assigned market makers. If it does, then the process continuesto step 1510, where it checks if the incoming intermarket sweep limitsell order is a directed order or not. If the incoming intermarket sweeplimit sell order is a directed order, then the process continues to step1514 where the “Directed Order Process” is initiated in step 2000 inFIG. 20A, If, however, the incoming intermarket sweep limit sell orderis not a directed order, then the process proceeds to step 1512 wherethe “LMM Guaranteed Bid Process” is initiated instead in step 1800 inFIG. 18.

Regardless of whether the incoming intermarket sweep limit sell orderexecutes in the Directed Order Process, in the LMM Guaranteed BidProcess, or in neither process (if the applicable market maker is notquoting at the NBB and is therefore ineligible for a guaranteedentitlement, or else if the issue does not have any assigned marketmakers), if the incoming intermarket sweep limit sell order still hasquantity available to trade, then the process continues to step 1516,where it retrieves the best bid in the virtual consolidated order andquote list, i.e., the buy order, market maker quote, or disseminatedaway market quote with the highest ranking. In step 1518, the processchecks if the incoming intermarket sweep limit sell order is stillmarketable (by way of explanation, it is possible that it is no longermarketable if the quotes and orders at the NBB were exhausted).

At step 1518, if the process determines that the incoming intermarketsweep limit sell order is still marketable, then it continues to step1520, where it checks if the retrieved best bid is on or off the marketcenter 20. If the retrieved best bid is on the market center 20, thenthe process continues to step 1522, where if the retrieved best bid is amarket maker quote, the process automatically generates an IOC buypseudo-order on behalf of the underlying market maker quote. The processcontinues to step 1524, where it matches the incoming intermarket sweeplimit sell order against the retrieved buy order or pseudo-order, at thebuy order's price. If the matched buy order is a pseudo-order, then instep 1526, the process notifies the market maker quote engine 32 b ofthe quantity that was executed so that the market maker quote engine 32b can decrement the underlying market maker quote.

The process continues to step 1528, where it checks if the incomingintermarket sweep limit sell order still has quantity available totrade. If it does not, then the process continues to step 1530, where itterminates as indicated. If, however, the incoming intermarket sweeplimit sell order does still have remaining quantity, then the processreturns to step 1516, where it retrieves the next-best bid in thevirtual consolidated order and quote list and continues to step 1518,where it checks if the incoming intermarket sweep limit sell order isstill marketable. The process continues to execute the incomingintermarket sweep limit sell order against all resident trading interestat the NBB as described above, until the incoming intermarket sweeplimit sell order is depleted, or else until the retrieved best bid is anaway market quote, as described next.

Returning to step 1520, if the retrieved best bid is an away marketquote, then the process continues to step 1536, where it checks if thereis a cap on the number of price levels at which an intermarket sweeplimit order can contemporaneously route. If such a restriction doesexist, then the process continues to step 1538, where it retrieves thestored “Intermarket Sweep Cap” parameter from the Routing Process. Instep 1540, the process computes the minimum price at which theintermarket sweep limit sell order can route (“MaxPriceOffNBB”) bysubtracting the price equivalent to the number of ticks specified in theretrieved “Intermarket Sweep Cap” parameter from the current NBB price.By way of example, if the minimum price increment for an issue is anickel and the Intermarket Sweep Cap is set to ‘2,’ then theMaxPriceOffNBB is the NBB less ten cents. If the minimum price incrementfor an issue is a penny and the Intermarket Sweep Cap is set to ‘2,’then the MaxPriceOffNBB is the NBB less two cents. In step 1542, theprocess checks if the retrieved away market Bid price is lower than thederived MaxPriceOffNBB. If the away market Bid price is greater than orequal to the MaxPriceOffNBB, then it is eligible to receive a routedorder, and the process continues to step 1544, where the processreleases the incoming intermarket sweep limit sell order to the RoutingProcess, which routes to the highest-ranking away market as appropriate,up to its disseminated bid size, at the disseminated bid price.

Returning to step 1536, if, however, there is no cap on the number ofprice levels at which an intermarket sweep limit order cancontemporaneously route, then the process also continues to step 1544.

After routing to the away market, the process continues to step 1528,where it checks if the incoming intermarket sweep limit sell order stillhas quantity available to trade. If the order is depleted, then theprocess terminates in step 1530 as indicated. If, however, the orderstill has remaining quantity, then it returns to step 1516, where itretrieves the next best bid, and if the incoming intermarket sweep limitsell order is marketable against the next best bid, will continue tomatch the resident order or quote or route to the away market quote, asjust described.

At each price level, the incoming intermarket sweep limit sell ordermatches the displayed trading interest, then matches the nondisplayed(“Working”) interest, then routes to the away market interest. Onlyafter all away markets at the current price level have been satisfieddoes the incoming intermarket sweep limit sell order proceed to executewith the trading interest at the next-best price level. The processrepeats these steps for each price level allowed, until the incomingintermarket sweep limit sell order is depleted, or until the retrievedbest bid is inferior to the MaxPriceOffNBB, as described next.

Returning to step 1542, if the away market's bid price is lower than theMaxPriceOffNBB, then the incoming intermarket sweep limit sell ordercannot route to it at the present time, and any remaining quantity mustbe posted. The process continues to step 1546, where it caps theincoming intermarket sweep limit sell order at the last price at whichit routed. The last routed price will cross the NBB, but only to theextent to which it locks the disseminated bid prices of all the awaymarkets that the intermarket sweep limit sell order satisfied.Specifically, the capped order will not lock the bid price of any awaymarket where the obligation to the quote has not been fully satisfied.The process continues to step 1548, where it ranks the cappedintermarket sweep limit sell order in the internal order book 29 a inthe Display Order Process according to the price/time priority of itscapped price, i.e., the last price at which it routed. The process alsodisseminates the capped order to the public order book at its current(capped) price. The posted intermarket sweep limit sell order crossesthe market.

Continuing to step 1550, if the NBB price should move lower, then thecapped intermarket sweep limit sell order can execute further. Theprocess removes the cap, and allows the intermarket sweep limit sellorder to revert to its original user-specified limit price. The repricedorder loses its standing in the internal order book 29 a, and isprocessed as if it were a new incoming order. Accordingly, the processreturns to step 1502, and the intermarket sweep limit sell order isallowed to execute further at its more aggressive price. If the orderstill has quantity remaining but once again can execute no further, thenat step 1546, the process caps the order at the last price at which itrouted, and posts it again at step 1548. This process is repeated untilthe intermarket sweep limit sell order is depleted, or else the NBBmoves away to the extent to which the order can be posted at itsoriginal user-specified price. Once the order is posted at its originaluser-specified limit price, it is never capped again. The process thenterminates in step 1552 as indicated.

Returning to step 1504, if, however, the incoming intermarket sweeplimit sell order was never marketable, then the process continues tostep 1532, where it ranks the order in the Display Order Process of theinternal order book 29 a according to price/time priority, anddisseminates the order to the public order book. As the nonmarketableorder is ranked at its original limit price, it is not affected when theNBB changes. The process then terminates in step 1534 as indicated.

Returning to step 1518, if, however, the incoming intermarket sweeplimit sell order is no longer marketable, then the process continues tostep 1532 and 1534 as just described.

Intermarket Sweep Limit Order Trading Example

In this example, the issue has an assigned lead market maker (LMM) thatis quoting at the NBO when a marketable incoming intermarket sweep limitbuy order is received. In this example, intermarket sweep limit buyorders are allowed to route contemporaneously to all away markets pricedup to two ticks inferior to the NBO. The intermarket sweep limit buyorder executes in the LMM Guaranteed Offer Process and the Display OrderProcess and then routes to the away market at the NBO. After routing atthe NBO, the incoming intermarket sweep limit buy ordercontemporaneously executes with a posted sell order whose price is onetick inferior to the NBO, routes to an away market whose offer is onetick inferior to the NBO, executes with a market maker quote priced attwo ticks inferior to the NBO, routes to an away market whose offer istwo ticks inferior to the NBO, and executes with a posted sell orderwhose price is three ticks inferior to the NBO. The remaining portion ofthe intermarket sweep limit buy order is capped at two ticks inferior tothe NBO, the last price at which it routed. When the NBO moves away fromthe posted intermarket sweep limit buy order, the order reverts to itsuser-specified price, and routes again to an away market that is twoticks inferior to the new NBO. The remaining portion of the intermarketsweep limit buy order is automatically repriced and posted at two ticksinferior to the new NBO, the last price at which it routed.

The NBBO is 2.57 to 2.60 (70×110).

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.57 Away Market A: Offer 50 @ 2.60Away Market B: Bid 40 @ 2.56 Away Market B: Offer 40 @ 2.61 Away MarketA: Bid 50 @ 2.55 Away Market C: Offer 30 @ 2.62 Away Market D: Bid 20 @2.55 Away Market D: Offer 20 @ 2.63

The market maker quote book 33 a looks like this:

Bids Offers MM2: Bid 30 @ 2.57 LMM: Offer 40 @ 2.60 LMM: Bid 40 @ 2.56MM2: Offer 30 @ 2.62

The internal order book 29 a looks like this. Order D is on behalf of acustomer, whereas Order E is not:

Bids Offers Order A: Buy 10 @ 2.57 Order D: Sell 10 @ 2.60 Order B: Buy10 @ 2.55 Order E: Sell 10 @ 2.60 Order C: Buy 10 @ 2.52 Order F: Sell10 @ 2.61 Order X: Sell 10 @ 2.63 Order Z: Sell 10 @ 2.65The market center BBO is 2.57 to 2.60 (40×60)

The public order book looks like this:

Bids Offers 40 @ 2.57 60 @ 2.60 40 @ 2.56 10 @ 2.61 10 @ 2.55 30 @ 2.6210 @ 2.52 10 @ 2.63 10 @ 2.65Incoming Marketable Intermarket Sweep Limit Buy Order is Received

In step 1400, the order matching engine 21 receives the following order:

Order K: Buy 260 @ 2.65, Intermarket Sweep Limit

In step 1402, the process retrieves the NBO (2.60). In step 1404, theprocess checks if incoming Buy Order K is marketable, i.e., is priced ator better than the NBO. As it is, the process continues to step 1405,where it initiates the “Too-Executable Buy Order Check Process,” andproceeds to step 1600 in FIG. 16.

In step 1602, the process checks if incoming Buy Order K's price (2.65)is higher than the NBO (2.60). As it is, the process continues to step1604, where it checks if intermarket sweep limit orders should bechecked for excessive marketability. As the check for excessivemarketability is enabled for intermarket sweep limit orders in thisembodiment, the process continues to step 1608, where it retrieves the“MaxPercentOffNBBO” parameter, which is configured to 15% in thisexample. It should be noted that the minimum price increment (tick) forthis issue is 0.01. In step 1610, the process computes theMaxPriceThruNBO by multiplying the NBO (2.60) by the MaxPercentOffNBBO(15%), deriving the MaxPriceThruNBO=0.39 (15% of 2.60=0.39). In step1612, the process computes the MaxBuyPrice by adding the derivedMaxPriceThruNBO (0.39) to the NBO (2.60), deriving the MaxBuyPrice of2.99 (2.60+0.39=2.99). Accordingly, the highest price allowable forincoming Buy Order K is 2.99. The process continues to step 1614, whereit checks if incoming Buy Order K's price (2.65) is higher than theMaxBuyPrice (2.99). As it is not higher, incoming Buy Order K does notneed to be repriced or canceled, and the process continues to step 1616,where it returns to the step where it was originally invoked, back tostep 1405.

The process continues to step 1406, where it combines the away marketBBO book 25 a, the market maker quote book 33 a, and the internal orderbook 29 a together in a virtual consolidated order and quote list, whichit ranks in price/display/time priority, but with a preference forresident interest over away market interest at the same price level. Inthis example, Sell Orders D and E were received before the LMM Offer wasquoted.

The virtual consolidated order and quote list looks like this:

Bids Offers MM2: Bid 30 @ 2.57 Order D: Sell 10 @ 2.60 Order A: Buy 10 @2.57 Order E: Sell 10 @ 2.60 Away Bid 30 @ 2.57 LMM: Offer 40 @ 2.60Market C: LMM: Bid 40 @ 2.56 Away Offer 50 @ 2.60 Market A: Away Bid 40@ 2.56 Order F: Sell 10 @ 2.61 Market B: Order B: Buy 10 @ 2.55 AwayOffer 40 @ 2.61 Market B: Away Bid 50 @ 2.55 MM2: Offer 30 @ 2.62 MarketA: Away Bid 20 @ 2.55 Away Offer 30 @ 2.62 Market D: Market C: Order C:Buy 10 @ 2.52 Order X: Sell 10 @ 2.63 Away Offer 20 @ 2.63 Market D:Order Z: Sell 10 @ 2.65

The process continues to step 1408, where it checks if this issue hasany assigned market makers. As it does, the process continues to step1410, where it checks if incoming Buy Order K is a directed order ornot. As it is not a directed order, the process continues to step 1412,where it initiates the “LMM Guaranteed Offer Process,” and proceeds tostep 1900 in FIG. 19.

LMM Guarantee Process is in Effect for this Issue

In step 1902, the process retrieves the LMM Offer (40 @ 2.60). In step1904, it checks if the LMM Offer is at the NBO (2.60). As it is, thelead market maker is entitled to guaranteed participation with incomingBuy Order K, after any superior displayed customer orders are executedfirst. The process continues to step 1908, where it checks if incomingBuy Order K's order size (260) is greater than two contracts. As it is,the process continues to step 1914.

Incoming Intermarket Sweep Limit Buy Order Matches the DisplayedCustomer Sell Order with Time Priority Over the LMM Offer

In step 1914, the process checks if there are any customer sell ordersdisplayed at the NBO, and finds posted Sell Order D. The processcontinues to step 1916, where it stores the timestamp on the LMM Offerin the parameter “LMMOfferTimestamp.” In step 1918, the processretrieves the earliest displayed customer sell order at the NBO, SellOrder D, and in step 1920, the process compares the timestamp of postedSell Order D to the LMMOfferTimestamp. As posted Sell Order D wasreceived earlier than the LMM Offer, the process continues to step 1922,where it matches 10 contracts of incoming Buy Order K with posted SellOrder D, completely depleting posted Sell Order D and removing it fromthe books.

The process continues to step 1924, where it checks if incoming BuyOrder K still has quantity available to trade. As it still has 250contracts remaining, the process continues to step 1928, where it checksif there are any additional customer sell orders at the NBO. As thereare none (Sell Order E is not on behalf of a customer), the processcontinues to step 1932.

Incoming Intermarket Sweep Limit Buy Order Matches the LMM Offer

In step 1932, the process retrieves the LMMGuaranteedPercent parameter,which is configured to 40% in this example. In step 1934, the processderives the LMMGuaranteedAllocation (100 contracts) by multiplying theLMMGuaranteedPercent (40%) by the remaining portion of incoming BuyOrder K (250 contracts). The LMMGuaranteedAllocation is the maximumquantity of contracts that can execute in the LMM Guarantee Process.

In step 1938, the process matches 40 contracts of incoming Buy Order Kagainst the LMM Offer, the lesser of the LMMGuaranteedAllocation (100contracts) and the LMM Offer size (40 contracts), at the NBO price of2.60. It does this by generating an IOC pseudo-order to Sell 40® 2.60 onbehalf of the LMM Offer, and executing incoming Buy Order K against thesell pseudo-order. The LMM Offer at 2.60 is completely depleted, and isremoved from the virtual consolidated order and quote list. The processnotifies the market maker quote engine 32 b to decrement the LMM Offerby the 40 contracts executed. The LMM Guaranteed Offer Process hascompleted.

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.57 Order D: Sell 10 @ 2.60 Order A: Buy 10 @2.57 Away Market A: Offer 50 @ 2.60 Away Market C: Bid 30 @ 2.57 OrderF: Sell 10 @ 2.61 LMM: Bid 40 @ 2.56 Away Market B: Offer 40 @ 2.61 AwayMarket B: Bid 40 @ 2.56 MM2: Offer 30 @ 2.62 Order B: Buy 10 @ 2.55 AwayMarket C: Offer 30 @ 2.62 Away Market A: Bid 50 @ 2.55 Order X: Sell 10@ 2.63 Away Market D: Bid 20 @ 2.55 Away Market D: Offer 20 @ 2.63 OrderC: Buy 10 @ 2.52 Order Z: Sell 10 @ 2.65

The market maker quote engine 32 b decrements the LMM Offer by the 40contracts executed, completely depleting it. The market maker quote book33 a now looks like this (the lead market maker will manually replenishits offer, but this is not illustrated to simplify the example):

Bids Offers MM2: Bid 30 @ 2.57 MM2: Offer 30 @ 2.62 LMM: Bid 40 @ 2.56

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.57 Order E: Sell 10 @ 2.60 Order B: Buy10 @ 2.55 Order F: Sell 10 @ 2.61 Order C: Buy 10 @ 2.52 Order X: Sell10 @ 2.63 Order Z: Sell 10 @ 2.65The market center BBO is now 2.57 to 2.60 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.57 10 @ 2.60 ← 40 @ 2.56 10 @ 2.61 10 @ 2.55 30 @2.63 10 @ 2.52 10 @ 2.63 10 @ 2.65

The process continues to step 1942, where it checks if incoming BuyOrder K still has any quantity available to trade. As it still has 210contracts remaining, the process continues to step 1946, where itreturns to the step where the routine was originally invoked, back tostep 1412 of FIG. 14A.

Incoming Intermarket Sweep Limit Buy Order Matches the Non-Customer SellOrder

The process continues to step 1416, where it retrieves the best offer inthe virtual consolidated order and quote list, which is posted SellOrder E. In step 1418, the process checks if incoming Buy Order K'sprice (2.65) is greater than or equal to posted Sell Order E's price(2.60). As incoming Buy Order K's price is higher, the process continuesto step 1420, where it checks if posted Sell Order E is on or off themarket center 20. As it is a resident book order, the process bypassesstep 1422 and continues to step 1424, where it matches 10 contracts ofincoming Buy Order K against posted Sell Order E, at Sell Order E'sprice of 2.60. Posted Sell Order E is completely depleted and is removedfrom the books.

The NBBO is now 2.57 to 2.60 (70×50)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.57 Away Market A: Offer 50 @ 2.60 Order A:Buy 10 @ 2.57 Order F: Sell 10 @ 2.61 Away Market C: Bid 30 @ 2.57 AwayMarket B: Offer 40 @ 2.61 LMM: Bid 40 @ 2.56 MM2: Offer 30 @ 2.62 AwayMarket B: Bid 40 @ 2.56 Away Market C: Offer 30 @ 2.62 Order B: Buy 10 @2.55 Order X: Sell 10 @ 2.63 Away Market A: Bid 50 @ 2.55 Away Market D:Offer 20 @ 2.63 Away Market D: Bid 20 @ 2.55 Order Z: Sell 10 @ 2.65Order C: Buy 10 @ 2.52

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.57 Order F: Sell 10 @ 2.61 Order B: Buy10 @ 2.55 Order X: Sell 10 @ 2.63 Order C: Buy 10 @ 2.52 Order Z: Sell10 @ 2.65The market center BBO is now 2.57 to 2.61 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.57 10 @ 2.61 ← 40 @ 2.56 30 @ 2.62 10 @ 2.55 10 @2.63 10 @ 2.52 10 @ 2.65

The process bypasses step 1426 and continues to step 1428, where itchecks if incoming Buy Order K still has any quantity available totrade. As it still has 200 contracts remaining, the process returns tostep 1416 and retrieves the best offer in the virtual consolidated orderand quote list, which is Away Market A's offer. In step 1418, theprocess checks if incoming Buy Order K's price (2.65) is greater than orequal to Away Market A's offer (2.60). As incoming Buy Order K's priceis higher, the process continues to step 1422, where it checks if AwayMarket A's offer is on or off the market center 20. As it is an awaymarket quote, the process continues to step 1436.

Determine the Number of Price Levels at which the Incoming IntermarketSweep Limit Buy Order can Route Contemporaneously

In step 1436, the process checks if there is a cap on the number ofprice levels at which an intermarket sweep limit order cancontemporaneously route to. If there is no restriction on the number ofprice levels, then incoming Buy Order K would simply match every orderand route to every offer in the virtual consolidated order and quotelist, according to the ranked sequence shown above, until the incomingorder is exhausted. However, this example illustrates how an intermarketsweep limit order behaves if there is a cap on routing to multiple awaymarkets at multiple price levels. The process therefore retrieves theIntermarket Sweep Cap parameter, which is set to two ticks in thisexample, in step 1438. Accordingly, incoming Buy Order K cancontemporaneously route to away markets at the NBO; at one tick inferiorto the NBO; and at two ticks inferior to the NBO. However, it cannotroute to away markets at three or more ticks inferior to the NBO.

Incoming Intermarket Sweep Limit Buy Order Routes to Away Market Offerat the NBO

In step 1440, the process derives the highest price at which Buy Order Kcan route (i.e., the “MaxPriceOffNBO”) by adding two ticks to the NBO.As the minimum price increment (tick) for this issue is a penny, theMaxPriceOffNBO is 2.62 (2.60+0.02). In step 1442, the process checks ifAway Market A's offer (2.60) is greater than the derived MaxPriceOffNBO(2.62). As Away Market A's offer price is lower, the process continuesto step 1444, where it allows the Routing Process to determine thehighest-ranking eligible away market at the NBO. Away Market A is aloneat the NBO. As no prior orders have been routed to Away Market A in thisexample, the process satisfies its full disseminated offer size byrouting 50 contracts to Away Market A, at its disseminated offer priceof 2.60.

After routing to Away Market A, the process returns to step 1428, whereit checks if incoming Buy Order K has any quantity still available totrade. As it still has 150 contracts remaining, the process returns tostep 1416, where it retrieves the best offer in the virtual consolidatedorder and quote list. As Away Market A's offer has been completelysatisfied, the best offer is now posted Sell Order F. In step 1418, theprocess checks if incoming Buy Order K's price (2.65) is greater than orequal to Sell Order F's price (2.61). As Buy Order K's price is higher,the process continues to step 1420, where it checks if Sell Order F ison or off the market center 20.

Incoming Intermarket Sweep Limit Buy Order Executes Contemporaneouslywith Sell Order Priced at One Tick Inferior to the NBO

As Sell Order F is a book order, the process bypasses step 1422 andcontinues to step 1424, where it matches 10 contracts of incoming BuyOrder K against posted Sell Order F, at Sell Order F's price of 2.61,completely depleting Sell Order F and removing it from the books.

The NBBO is still 2.57 to 2.60 (70×50)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.57 Away Market A: Offer 50 @ 2.60 Order A:Buy 10 @ 2.57 Away Market B: Offer 40 @ 2.61 Away Market C: Bid 30 @2.57 MM2: Offer 30 @ 2.62 LMM: Bid 40 @ 2.56 Away Market C: Offer 30 @2.62 Away Market B: Bid 40 @ 2.56 Order X: Sell 10 @ 2.63 Order B: Buy10 @ 2.55 Away Market D: Offer 20 @ 2.63 Away Market A: Bid 50 @ 2.55Order Z: Sell 10 @ 2.65 Away Market D: Bid 20 @ 2.55 Order C: Buy 10 @2.52

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.57 Order X: Sell 10 @ 2.63 Order B: Buy10 @ 2.55 Order Z: Sell 10 @ 2.65 Order C: Buy 10 @ 2.52The market center BBO is now 2.57 to 2.62 (40×30)

The public order book looks like this:

Bids Offers 40 @ 2.57 30 @ 2.62 ← 40 @ 2.56 10 @ 2.63 10 @ 2.55 10 @2.65 10 @ 2.52

The process bypasses step 1426 and continues to step 1428, where itchecks if incoming Buy Order K still has any quantity available totrade. As it still has 140 contracts remaining, the process returns tostep 1416, and retrieves the best offer in the virtual consolidatedorder and quote list. As Away Market A's offer has been fully satisfied,the best offer is Away Market B's offer. In step 1418, the processchecks if incoming Buy Order K's price (2.65) is greater than or equalto Away Market B's offer (2.61). As incoming Buy Order K's price ishigher, the process continues to step 1420, where it checks if AwayMarket B's offer is on or off the market center 20. As it is an awaymarket quote, the process continues to step 1436. As before, theIntermarket Sweep Cap parameter of two ticks is retrieved at step 1438.

Incoming Intermarket Sweep Limit Buy Order Contemporaneously Routes toan Away Market Priced at One Tick Inferior to the NBO

In step 1440, the process derives the highest price at which Buy Order Kcan route (i.e., the “MaxPriceOffNBO”) by adding two ticks to the NBO.As the NBO is still 2.60, the MaxPriceOffNBO is still 2.62 (2.60+0.02).In step 1442, the process checks if Away Market B's offer (2.61) isgreater than the derived MaxPriceOffNBO (2.62). As Away Market B's offerprice is lower, the process continues to step 1444, where it allows theRouting Process to determine the highest-ranking eligible away marketoffering at the price of 2.61. Away Market B is alone at the price of2.61. As no prior orders have been routed to Away Market B in thisexample, the process satisfies its full disseminated offer size byrouting 40 contracts to Away Market B, at its disseminated offer priceof 2.61.

After routing to Away Market B, the process returns to step 1428, whereit checks if incoming Buy Order K has any quantity still available totrade. As it still has 100 contracts remaining, the process returns tostep 1416, where it retrieves the best offer in the virtual consolidatedorder and quote list. As Away Market A's offer and Away Market B's offerhave both been completely satisfied, the best offer is now the MM2Offer. In step 1418, the process checks if incoming Buy Order K's price(2.65) is greater than or equal to the MM2 Offer price (2.62). As BuyOrder K's price is higher, the process continues to step 1420, where itchecks if the MM2 Offer is on or off the market center 20. As the offeris a resident market maker quote, the process continues to step 1422.

Incoming Intermarket Sweep Limit Buy Order Contemporaneously Executeswith Market Maker Offer Priced at Two Ticks Inferior to the NBO

In step 1422, the process generates an IOC pseudo-order to Sell 30 @2.62 on behalf of the underlying MM2 quote. In step 1424, the processmatches 30 contracts of incoming Buy Order K against the sellpseudo-order, at the pseudo-order price of 2.62, completely depletingthe pseudo-order. The process removes the depleted MM2 Offer from thevirtual consolidated order and quote list. In step 1426, the processnotifies the market maker quote engine 32 b that 30 contracts of the MM2Offer executed so that the market maker quote engine 32 b can decrementthe quote.

The NBBO is still 2.57 to 2.60 (70×50)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.57 Away Market A: Offer 50 @ 2.60 Order A:Buy 10 @ 2.57 Away Market B: Offer 40 @ 2.61 Away Market C: Bid 30 @2.57 Away Market C: Offer 30 @ 2.62 LMM: Bid 40 @ 2.56 Order X: Sell 10@ 2.63 Away Market B: Bid 40 @ 2.56 Away Market D: Offer 20 @ 2.63 OrderB: Buy 10 @ 2.55 Order Z: Sell 10 @ 2.65 Away Market A: Bid 50 @ 2.55Away Market D: Bid 20 @ 2.55 Order C: Buy 10 @ 2.52

The market maker quote engine 32 b removes the depleted MM2 Offer. Themarket maker quote book 33 a now looks like this (both the LMM and theMM2 will manually replenish their offers, but this is not illustrated tosimplify the example):

Bids Offers MM2: Bid 30 @ 2.57 LMM: Bid 40 @ 2.56The market center BBO is now 2.57 to 2.63 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.57 10 @ 2.63 ← 40 @ 2.56 10 @ 2.65 10 @ 2.55 10 @2.52

The process continues to step 1428, where it checks if incoming BuyOrder K still has any quantity available to trade. As it still has 70contracts remaining, the process returns to step 1416, and retrieves thebest offer in the virtual consolidated order and quote list. As AwayMarket A and Away Market B have both been fully satisfied, the bestoffer is Away Market C's offer. In step 1418, the process checks ifincoming Buy Order K's price (2.65) is greater than or equal to AwayMarket C's offer (2.62). As incoming Buy Order K's price is higher, theprocess continues to step 1420, where it checks if Away Market C's offeris on or off the market center 20. As it is an away market quote, theprocess executes steps 1436 through 1440 as described above.

Incoming Intermarket Sweep Limit Buy Order Contemporaneously Routes toan Away Market Quote Priced at Two Ticks Inferior to the NBO

In step 1442, the process checks if Away Market C's offer (2.62) isgreater than the derived MaxPriceOffNBO (2.62). As Away Market C's offerprice is equal to the MaxPrice0f1NBO, the process continues to step1444, where it allows the Routing Process to determine thehighest-ranking eligible away market offering at 2.62. Away Market C isalone at the price of 2.62. As no prior orders have been routed to AwayMarket C in this example, the process satisfies its full disseminatedoffer size by routing 30 contracts to Away Market C, at its disseminatedoffer price of 2.62.

After routing to Away Market C, the process returns to step 1428, whereit checks if incoming Buy Order K has any quantity still available totrade. As it still has 40 contracts remaining, the process returns tostep 1416, where it retrieves the best offer in the virtual consolidatedorder and quote list. As Away Markets A, B, and C's offers have beencompletely satisfied, the best offer is now posted Sell Order X. In step1418, the process checks if incoming Buy Order K's price (2.65) isgreater than or equal to Sell Order X's price (2.63). As Buy Order K'sprice is higher, the process continues to step 1420, where it checks ifSell Order X is on or off the market center 20.

Incoming Intermarket Sweep Limit Buy Order Executes Contemporaneouslywith Sell Order Priced at Three Ticks Inferior to the NBO

As Sell Order X is a book order, the process bypasses step 1422 andcontinues to step 1424, where it matches 10 contracts of incoming BuyOrder K against posted Sell Order X, at Sell Order X's price of 2.63,completely depleting Sell Order X and removing it from the books.

The NBBO is still 2.57 to 2.60 (70×50)

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.57 Away Market A: Offer 50 @ 2.60 Order A:Buy 10 @ 2.57 Away Market B: Offer 40 @ 2.61 Away Market C: Bid 30 @2.57 Away Market C: Offer 30 @ 2.62 LMM: Bid 40 @ 2.56 Away Market D:Offer 20 @ 2.63 Away Market B: Bid 40 @ 2.56 Order Z:  Sell 10 @ 2.65Order B: Buy 10 @ 2.55 Away Market A: Bid 50 @ 2.55 Away Market D: Bid20 @ 2.55 Order C: Buy 10 @ 2.52

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.57 Order Z: Sell 10 @ 2.65 Order B: Buy10 @ 2.55 Order C: Buy 10 @ 2.52The market center BBO is now 2.57 to 2.65 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.57 10 @ 2.65 ← 40 @ 2.56 10 @ 2.55 10 @ 2.52

The process bypasses step 1426 and continues to step 1428, where itchecks if incoming Buy Order K still has any quantity available totrade. As it still has 30 contracts remaining, the process returns tostep 1416, and retrieves the best offer in the virtual consolidatedorder and quote list. As Away Markets A, B, and C's offers have beenfully satisfied, the best offer is Away Market D's offer. In step 1418,the process checks if incoming Buy Order K's price (2.65) is greaterthan or equal to Away Market D's offer (2.63). As incoming Buy Order K'sprice is higher, the process continues to step 1420, where it checks ifAway Market D's offer is on or off the market center 20. As it is anaway market quote, the process executes steps 1436 through 1440 aspreviously described. In step 1442, the process checks if Away MarketD's offer price (2.63) is greater than the derived MaxPriceOffNBO(2.62). As Away Market D's offer price is indeed higher, incoming BuyOrder K cannot route to Away Market D, as it is too far off the NBO.

Incoming Intermarket Sweep Limit Buy Order is Capped at the Last PriceRouted, and is Posted

The process continues to step 1446, where it caps incoming Buy Order Kat the price of 2.62, which is the last price at which it routed (toAway Market C). It does this by retaining incoming Buy Order K'soriginal limit price (2.65), but posting it at the last routed price(2.62) so that it crosses the NBO, but only to the extent to which ithas fully satisfied the away markets whose offer prices are beinglocked. By way of explanation, incoming Buy Order K is allowed to lockAway Market A, B, and C's offer prices (2.60, 2.61, and 2.62respectively) because it fully satisfied their quotes, but it is notallowed to lock Away Market D's offer price (2.63) because it has notrouted to Away Market D, even though incoming Buy Order K executedagainst posted Sell Order X at the price of 2.63. As illustrated in thisexample, in this embodiment, intermarket sweep limit orders, if they arecapped, are capped at the last price at which the order was routed,which is not necessarily the same as the last price at which theincoming order executed against the internal order book 29 a. Theprocess continues to step 1448, where it ranks the remaining 30contracts of incoming Buy Order K in the Display Order Process of theinternal order book 29 a according to its capped price of 2.62, anddisseminates Buy Order K to the public order book.

The NBBO is now 2.62 to 2.60 (30×50). The market is now crossed.

The virtual consolidated order and quote list now looks like this:

Bids Offers Order K: Buy 30 @ 2.62 ← Away Market A: Offer 50 @ 2.60Original price = 2.65 MM2: Bid 30 @ 2.57 Away Market B: Offer 40 @ 2.61Order A: Buy 10 @ 2.57 Away Market C: Offer 30 @ 2.62 Away Market Bid 30@ 2.57 Away Market D: Offer 20 @ 2.63 C: LMM: Bid 40 @ 2.56 Order Z: Sell 10 @ 2.65 Away Market Bid 40 @ 2.56 B: Order B: Buy 10 @ 2.55 AwayMarket Bid 50 @ 2.55 A: Away Market Bid 20 @ 2.55 D: Order C: Buy 10 @2.52

The internal order book 29 a now looks like this:

Bids Offers Order K: Buy 30 @ 2.62 ← Order Z: Sell 10 @ 2.65 Originalprice = 2.65 Order A: Buy 10 @ 2.57 Order B: Buy 10 @ 2.55 Order C: Buy10 @ 2.52The market center BBO is now 2.62 to 2.65 (30×10)

The public order book looks like this:

Bids Offers 30 @ 2.62 ← 10 @ 2.65 40 @ 2.57 40 @ 2.56 10 @ 2.55 10 @2.52Away Markets Fill the Routed Orders but the Posted Intermarket SweepLimit Buy Order does not Ship Additional QuantityAway Market A fills the 50 contracts routed to itAway Market B fills the 40 contracts routed to itAway Market C fills the 30 contracts routed to it

An intermarket sweep limit order does not ship to an away market inresponse to a fill. Accordingly, Buy Order K remains posted and does notship additional quantity to Away Markets A, B or C.

Away Market Fades its Offer, Changing the NBO Price

Away Market A fades its offer from the NBO

The NBBO is now 2.62 to 2.61 (30×40). The market is still crossed.

The away market BBO book 25 a looks like this:

Bids Offers Away Market C: Bid 30 @ 2.57 Away Market B: Offer 40 @ 2.61Away Market B: Bid 40 @ 2.56 Away Market C: Offer 30. @ 2.62 Away MarketA: Bid 50 @ 2.55 Away Market D: Offer 20 @ 2.63 Away Market D: Bid 20 @2.55 Away Market A: Offer 50 @ 2.64←

The quote engine 23 a notifies the order matching engine 21 of thechange to Away Market A's offer and to the NBO. As described in step1450, as the NBO price has moved higher (it was previously 2.60, but isnow 2.61), the process removes the cap from posted Buy Order K, allowingit to revert to its original order price of 2.65, and processes it as ifit were a new incoming order, removing it from the books.

Posted Intermarket Sweep Limit Buy Order's Cap is Removed, and theRemaining Quantity is Processed Like a New Incoming Order

In step 1402, the process retrieves the new NBO (2.61). In step 1404, itchecks if “incoming” uncapped Buy Order K's price (2.65, its originalprice) is marketable, i.e., is at or better than the NBO (2.61). As itis, the process continues to step 1405, where it initiates the“Too-Executable Buy Order Check Process,” and proceeds to step 1600 inFIG. 16. Buy Order K is not “too executable,” as the MaxBuyPrice is now3.00 (NBO price of 2.61+0.39=3.00). The process continues to step 1406,where it creates a virtual consolidated order and quote list.

The virtual consolidated order and quote list looks like this:

Bids Offers MM2: Bid 30 @ 2.57 Away Market B: Offer 40 @ 2.61 Order A:Buy 10 @ 2.57 Away Market C: Offer 30 @ 2.62 Away Market C: Bid 30 @2.57 Away Market D: Offer 20 @ 2.63 LMM: Bid 40 @ 2.56 Away Market A:Offer 50 @ 2.64← Away Market B: Bid 40 @ 2.56 Order Z:  Sell 10 @ 2.65Order B: Buy 10 @ 2.55 Away Market A: Bid 50 @ 2.55 Away Market D: Bid20 @ 2.55 Order C: Buy 10 @ 2.52

The process continues to step 1408, where it checks if this issue hasany assigned market makers. As it does, the process continues to step1410, where it checks if “incoming” uncapped Buy Order K is a directedorder or not. It should be noted that once an order is posted, it isnever treated as a directed order again, even if it was originally sentas a directed order. As it is not a directed order, the processcontinues to step 1412, to initiate the “LMM Guaranteed Offer Process.”However, as the LMM Offer is not replenished in any of the examples ofthis document for ease of illustration, the process continues to step1416 instead.

Best Retrieved Offer is an Away Market Quote

In step 1416, the process retrieves the best offer in the virtualconsolidated order and quote list. As Away Market B's offer has beenfully satisfied and Away Market C's offer has been fully satisfied andneither away market has updated its quote yet, accordingly, the bestoffer is Away Market D's offer. In step 1418, the process checks if“incoming” uncapped Buy Order K's price (2.65) is greater than or equalto Away Market D's offer (2.63). As Buy Order K's price is higher, theprocess continues to step 1420, where it checks if Away Market D's offeris on or off the market center 20. As it is an away market quote, theprocess continues to step 1436.

Uncapped Intermarket Sweep Limit Buy Order Routes to an Away MarketOffer Priced at Two Ticks Inferior to the New NBO

The process executes steps 1436 and step 1438 as described above. Instep 1440, the process derives the highest price at which Buy Order Kcan now route (i.e., the “MaxPriceOffNBO”) by adding two ticks to thenew NBO. The newly derived MaxPriceOffNBO is 2.63 (2.61+0.02). In step1442, the process checks if Away Market D's offer (2.63) is greater thanthe derived MaxPriceOffNBO (2.63). As Away Market D's offer price isequal to the MaxPriceOffNBO, the process continues to step 1444, whereit allows the Routing Process to determine the highest-ranking eligibleaway market at the price of 2.63. Away Market D is alone at the price of2.63. As no prior orders have been routed to Away Market D in thisexample, the process satisfies its full disseminated offer size byrouting 20 contracts to Away Market D, at its disseminated offer priceof 2.63.

After routing to Away Market D, the process returns to step 1428, whereit checks if Buy Order K has any quantity still available to trade. Asit still has 10 contracts remaining, the process returns to step 1416,where it retrieves the best offer in the virtual consolidated order andquote list. As Away Markets B, C and D's offers have been completelysatisfied, the best offer is now Away Market A's offer.

In step 1418, the process checks if uncapped Buy Order K's price (2.65)is greater than or equal to Away Market A's offer (2.64). As Buy OrderK's price is higher, the process continues to step 1420, where it checksif Away Market A's offer is on or off the market center 20. As it is anaway market quote, the process executes steps 1436 through 1440 aspreviously described. In step 1442, the process checks if Away MarketA's offer price (164) is greater than the derived MaxPriceOffNBO (2.63).As Away Market A's offer price is indeed higher, Buy Order K cannotroute to Away Market A, as it is too far off the NBO.

Intermarket Sweep Limit Buy Order is Capped Again at the Last PriceRouted, and is Posted

The process continues to step 1446, where it once again caps Buy OrderK, this time at the price of 2.63, which is the last price at which itrouted (to Away Market D). It does this by retaining Buy Order K soriginal limit price (2.65), but posting it at the last routed price(2.63) so that it crosses the NBO, but only to the extent to which ithas fully satisfied the away markets whose offer prices are beinglocked. The process continues to step 1448, where it ranks the remaining10 contracts of Buy Order K in the Display Order Process of the internalorder book 29 a according to its newly capped price of 2.63, anddisseminates Buy Order K to the public order book.

The NBBO is now 2.63 to 2.61 (10×40). The market is still crossed.

The virtual consolidated order and quote list now looks like this:

Bids Offers Order K Buy 10 @ 2.63 ← Away Market B: Offer 40 @ 2.61Original Price = 2.65 MM2: Bid 30 @ 2.57 Away Market C: Offer 30 @ 2.62Order A: Buy 10 @ 2.57 Away Market D: Offer 20 @ 2.63 Away Market Bid 30@ 2.57 Away Market A: Offer 50 @ 2.60 C: LMM: Bid 40 @ 2.56 Order Z: Sell 10 @ 2.65 Away Market Bid 40 @ 2.56 B: Order B: Buy 10 @ 2.55 AwayMarket Bid 50 @ 2.55 A: Away Market Bid 20 @ 2.55 D: Order C: Buy 10 @2.52

The internal order book 29 a now looks like this:

Bids Offers Order K: Buy 10 @ 2.63 ← Order Z: Sell 10 @ 2.65 Originalprice = 2.65 Order A: Buy 10 @ 2.57 Order B: Buy 10 @ 2.55 Order C: Buy10 @ 2.52The market center BBO is now 2.63 to 2.65 (10×10)

The public order book looks like this:

Bids Offers 10 @ 2.63 ← 10 @ 2.65 40 @ 2.57 40 @ 2.56 10 @ 2.55 10 @2.52Incoming Sell Order Executes with Capped Intermarket Sweep Limit BuyOrder at its Posted Price

The order matching engine 21 receives the following incoming order:

Order K2: Sell 10 @ Market

When the order matching engine 21 receives a marketable incoming order,it creates a new virtual consolidated order and quote list by combiningthe books as previously described. As there have been no changes to thebooks in the interim, they look exactly as they did at the conclusion ofthe prior step. As the LMM's Bid (2.56) is inferior to the NBB (2.57),incoming Sell Order K2 does not participate in the LMM Guaranteed BidProcess. Instead, incoming Sell Order K2 matches posted Buy Order K atits capped price of 2.63, completely depleting both orders.The NBBO is now 2.57 to 2.61 (70×40). The market is no longer crossed.

The virtual consolidated order and quote list now looks like this:

Bids Offers MM2: Bid 30 @ 2.57 Away Market B: Offer 40 @ 2.61 Order A:Buy 10 @ 2.57 Away Market C: Offer 30 @ 2.62 Away Market C: Bid 30 @2.57 Away Market D: Offer 20 @ 2.63 LMM: Bid 40 @ 2.56 Away Market A:Offer 50 @ 2.64 Away Market B: Bid 40 @ 2.56 Order Z:  Sell 10 @ 2.65Order B: Buy 10 @ 2.55 Away Market A: Bid 50 @ 2.55 Away Market D: Bid20 @ 2.55 Order C: Buy 10 @ 2.52

The internal order book 29 a now looks like this:

Bids Offers Order A: Buy 10 @ 2.57 Order Z: Sell 10 @ 2.65 Order B: Buy10 @ 2.55 Order C: Buy 10 @ 2.52The market center BBO is now 2.57 to 2.65 (40×10)

The public order book looks like this:

Bids Offers 40 @ 2.57 ← 10 @ 2.65 40 @ 2.56 10 @ 2.55 10 @ 2.52

Away Market D fills the 20 contracts routed to it. Buy Order K iscompletely filled. The virtual consolidated order and quote list isdeleted from local memory.

Routines Common to the Incoming Order Types

The section that follows includes the detailed descriptions of theprocessing routines initiated by some or all of the different ordertypes of this embodiment. Incoming marketable stand-your-ground insidelimit buy orders, sweep limit buy-orders, and intermarket sweep limitbuy orders all initiate the “Too-Executable Buy Order Check Process”described below in FIG. 16. Similarly, incoming marketablestand-your-ground inside limit sell orders, sweep limit sell orders, andintermarket sweep limit sell orders all initiate the “Too-ExecutableSell Order Check Process” described below in FIG. 17.

The business rules of the market center 20 determine if a given ordertype may be directed to a specific market maker or not. All incomingmarketable directed buy order types initiate the “Directed OrderProcess” of FIG. 20A below and the “DMM Guaranteed Offer Process” ofFIG. 22 below if the incoming buy order is a directed order, and if theorder cannot execute as a directed order, initiate the “LMM GuaranteedOffer Process” of FIG. 19 below instead. Similarly, all incomingmarketable directed sell order types initiate the “Directed OrderProcess” of FIG. 20A below and the “DMM Guaranteed Bid Process” of FIG.21 below if the incoming sell order is a directed order, and if theorder cannot execute as a directed order, initiate the “LMM GuaranteedBid Process” of FIG. 18 below instead.

Too-Executable Buy Order Check Process

Referring now to FIG. 16, the “Too-Executable Buy Order Check Process”is illustrated. The “Too-Executable Buy Order Check Process” determinesif an incoming buy order is “too executable,” i.e., is priced soaggressively that it exceeds a predefined allowable percentage throughthe published NBO quotation. In the preferred embodiment, the predefinedpercentage is stored as a configurable parameter “MaxPercentOffNBBO,”which caps the highest limit price allowed for an incoming buy orderbased on the current NBO.

In step 1600, the “Too-Executable Buy Order Check Process” is initiatedwhen the order matching engine 21 receives an incoming buy order that ismarketable. In step 1602, the process compares the incoming buy order'sprice to the NBO. If the incoming buy order's price is not greater thanthe NBO, then the process continues to step 1606, where it returns tothe step where the procedure was originally invoked, and the processterminates because the incoming buy order is not “too executable.” If,however, in step 1602, the process determines that the incoming buyorder's price is greater than the NBO, then the process continues tostep 1604 instead.

In step 1604, the process checks if the check for excessivemarketability is enabled for the incoming buy order type. If theincoming buy order type is not subject to the check for excessivemarketability, then the process also continues to step 1606, where itreturns to the step where the procedure was originally invoked, and theprocess terminates because the incoming buy order is not evaluated as towhether it is “too executable.”

Returning to step 1604, if the process determines that the incoming buyorder is subject to the check for excessive marketability, then itcontinues to step 1608, where it retrieves the parameter“MaxPercentOffNBBO.” Then, in step 1610, the process computes the priceinterval allowed beyond the NBO for an incoming buy order (the“MaxPriceThruNBO” parameter) by multiplying the current NBO price by theMaxPercentOffNBBO. Accordingly, the MaxPriceThruNBO parameter iscomputed as the stored percentage parameter times the NBO price, roundeddown to the nearest tick if necessary. For example, if the NBO is 2.10and the MaxPercentOffNBBO is 15%, then the MaxPriceThruNBO parameter is0.315, which would be rounded down to 0.30 if the tick is a nickel atthis price level. If the issue trades in pennies, then it would berounded down to 0.31 instead. In step 1612, the process adds thecomputed MaxPriceThruNBO parameter to the current NBO to derive thehighest valid price for the incoming buy order, i.e., the “MaxBuyPrice.”

In step 1614, the process compares the price of the incoming buy orderto the derived MaxBuyPrice parameter. If the incoming buy order's priceis not higher than the MaxBuyPrice parameter, then the incoming buyorder is not “too executable,” and is eligible for further processing.In this case, the process continues to step 1616, where it returns tothe step where the procedure was originally initiated, as the processhas determined that the incoming buy order is not “too executable.”

Returning to step 1614, if, however, the incoming buy order's price ishigher than the derived MaxBuyPrice parameter, then the incoming buyorder is presently “too executable,” i.e., is priced too far through theNBO. Accordingly, the incoming buy order is not allowed to execute atthis price, and must either be canceled or repriced depending on thebusiness rules of the market center 20. In step 1618, if the rulesdetermine that the order must be canceled, then the process continues tostep 1620, where it cancels the incoming buy order and terminates instep 1622, as indicated. If, however, in step 1618 the business rules ofthe market center 20 determine that the incoming buy order should berepriced less aggressively instead of being canceled, then the processcontinues to step 1624, where it caps the price of the incoming buyorder at the derived MaxBuyPrice parameter. The process continues tostep 1626, where it returns to the step where it was originallyinitiated, and the process terminates because the repriced buy order isno longer “too executable.”

Too-Executable Sell Order Check Process

Referring now to FIG. 17, the “Too-Executable Sell Order Check Process”is illustrated. The “Too-Executable Sell Order Check Process” determinesif an incoming sell order is “too executable,” i.e., is priced soaggressively that it exceeds a predefined allowable percentage throughthe published NBB quotation. In the preferred embodiment, the predefinedpercentage is stored as a configurable parameter “MaxPercentOffNBBO,”which caps the lowest limit price allowed for an incoming sell orderbased on the current NBB.

In step 1700, the “Too-Executable Sell Order Check Process” is initiatedwhen the order matching engine 21 receives an incoming sell order thatis marketable. In step 1702, the process compares the incoming sellorder's price to the NBB. If the incoming sell order's price is notlower than the NBB, then the process continues to step 1706, where itreturns to the step where the procedure was originally invoked, and theprocess terminates because the incoming sell order is not “tooexecutable.” If, however, in step 1702, the process determines that theincoming sell order's price is lower than the NBB, then the processcontinues to step 1704 instead.

In step 1704, the process checks if the check for excessivemarketability is enabled for the incoming sell order type. If theincoming sell order type is not subject to the check for excessivemarketability, then the process also continues to step 1706, where itreturns to the step where the procedure was originally invoked, and theprocess terminates because the incoming sell order is not evaluated asto whether it is “too executable.”

Returning to step 1704, if the process determines that the incoming sellorder is subject to the check for excessive marketability, then itcontinues to step 1708, where it retrieves the parameter“MaxPercentOffNBBO.” Then, in step 1710, the process computes the priceinterval allowed beyond the NBB for an incoming sell order (the“MaxPriceThruNBB” parameter) by multiplying the current NBB price by theMaxPercentOffNBBO. Accordingly, the MaxPriceThruNBB parameter iscomputed as the stored percentage parameter times the NBB price, roundeddown to the nearest tick if necessary. For example, if the NBB is 1.90and the MaxPercentOffNBBO is 15%, then the MaxPriceThruNBB parameter is0.285, which would be rounded down to 0.25 if the tick is a nickel atthis price level. If the issue trades in pennies, then it would berounded down to 0.28 instead. In step 1712, the process subtracts thecomputed MaxPriceThruNBB parameter from the current NBB to derive thelowest valid price for the incoming sell order, i.e., the“MinSellPrice.”

In step 1714, the process compares the price of the incoming sell orderto the derived MinSellPrice parameter. If the incoming sell order'sprice is not lower than the MinSellPrice parameter, then the incomingsell order is not “too executable,” and is eligible for furtherprocessing. In this case, the process continues to step 1716, where itreturns to the step where the procedure was originally initiated, as theprocess has determined that the incoming sell order is not “tooexecutable.”

Returning to step 1714, if, however, the incoming sell order's price islower than the derived MinSellPrice parameter, then the incoming sellorder is presently “too executable,” i.e., is priced too far through theNBB. Accordingly, the incoming sell order is not allowed to execute atthis price, and must either be canceled or repriced depending on thebusiness rules of the market center 20. In step 1718, if the rulesdetermine that the order must be canceled, then the process continues tostep 1720, where it cancels the incoming sell order and terminates instep 1722, as indicated. If, however, in step 1718 the business rules ofthe market center 20 determine that the incoming sell order should berepriced less aggressively instead of being canceled, then the processcontinues to step 1724, where it caps the price of the incoming sellorder at the derived MinSellPrice parameter. The process continues tostep 1726, where it returns to the step where it was originallyinitiated, and the process terminates because the repriced sell order isno longer “too executable.”

The LMM Guaranteed Bid Process

Referring now to FIG. 18, the LMM Guaranteed Bid Process is illustrated.At step 1800, the process is initiated. At step 1802, the processretrieves the lead market maker's bid. In step 1804, the process checksif the lead market maker's bid is at the NBB price. If the lead marketmaker's bid is inferior to the NBB, then the lead market maker is notentitled to guaranteed participation with the incoming sell order, andthe process continues to step 1806, where it returns to the step whereit was originally invoked.

Returning to step 1804, if, however, the lead market maker's bid is atthe NBB, then the lead market maker is entitled to guaranteedparticipation with the incoming sell order. The process proceeds to step1808, where it checks if the incoming sell order's size is greater thantwo contracts. If it is less than or equal to two contracts, then theprocess continues to step 1809, where it matches the incoming sell orderwith one contract of the lead market's bid, at the NBB price. It doesthis by generating an immediate or cancel (“IOC”) buy pseudo-order onbehalf of the underlying lead market maker bid, and executing theincoming sell order against the buy pseudo-order. After executing thebuy pseudo-order, the order matching engine notifies the market makerquote engine 32 b of the quantity of contracts that executed (onecontract) so that it can decrement the lead market maker's bid.

Then at step 1810, the process checks if the incoming sell order stillhas one contract available to trade. If it does not, then the processterminates in step 1812 as indicated. If it does, then the processcontinues to step 1811, where it matches the single remaining contractof the incoming sell order with one contract of the best displayed bid.The best displayed bid is the buy order or quote with the highestranking in the Display Order Process according to price/time priority.The process terminates in step 1812 as indicated.

Returning to step 1808, if, however, the incoming sell order has morethan two contracts available to execute, then the process, in thisembodiment, determines if there are any customer orders that areeligible to execute ahead of the lead market maker's bid. Accordingly,the process proceeds to step 1814, where it checks if there are anydisplayed customer buy orders at the NBB.

If there are no displayed customer buy orders at the NBB, then the leadmarket maker is entitled to participate immediately with the incomingsell order. The process proceeds to step 1832, where it retrieves astored, configurable guaranteed allocation parameter determined by themarket center's business rules (“LMMGuaranteedPercent”). At step 1834,the process computes the maximum quantity of contracts that the leadmarket maker is guaranteed for execution (“LMMGuaranteedAllocation”) bymultiplying the remaining (“Leaves”) quantity of the incoming sell orderby the LMMGuaranteedPercent parameter, and rounding the result down tothe nearest integer value if necessary. In step 1838, the processmatches the incoming sell order with the lead market maker's bid, at theNBB price, up to the lesser of the computed LMMGuaranteedAllocation sizeand the lead marker maker bid size. It does this by generating an IOCbuy pseudo-order on behalf of the underlying lead market maker bid, andexecuting the incoming sell order against the buy pseudo-order. Afterexecuting the buy pseudo-order, the order matching engine notifies themarket maker quote engine 32 b of the quantity of contracts thatexecuted so that it can decrement the lead market maker's bid.

In step 1842, the process checks if the incoming sell order still hasany contracts available to trade. If the incoming sell order has beencompletely executed, then the process terminates in step 1844 asindicated. However, if the incoming sell order still has contractsavailable to trade, then the process returns to the step where it wasoriginally invoked, so that the incoming sell order can continue toexecute against other bids if possible. The LMM Guaranteed Bid Processis completed, and any remaining quantity of the incoming sell order isreleased to the Display Order Process.

Returning to step 1814, if, however, there are displayed customer buyorders at the NBB, then the process continues to step 1816, where itretrieves the timestamp assigned to the lead market maker's bid (thetime assigned by the market maker quote engine 32 b) and stores it inthe parameter “LMMBidTimestamp.” In step 1818, the process retrieves theearliest displayed customer buy order at the NBB. In step 1820, theprocess compares the timestamp of the retrieved customer buy order withthe LMMBidTimestamp parameter, and if the customer buy order precededthe lead market maker's bid, then the process continues to step 1822,where it matches the incoming sell order with the retrieved customer buyorder at the NBB price.

In step 1824, the process checks if the incoming sell order still hascontracts available to trade. If it does not, then the processterminates in step 1826 as indicated. If it does, then the processcontinues to step 1828, where it checks if there are any additionaldisplayed customer buy orders priced at the NBB. If there are additionalcustomer orders, then in step 1830, the process retrieves the nextearliest displayed customer buy order at the NBB and returns to step1820, where it checks if the newly-retrieved customer buy order wasreceived prior to the lead market maker's bid. It repeats this processuntil all customer buy orders with price/time priority over the leadmarket maker's bid have been matched, unless the incoming sell order isexhausted first.

Returning to step 1820, if, however, the timestamp of the retrievedcustomer buy order is not lower than the LMMBidTimestamp, then thecustomer order was not received prior to the lead market maker's bid,and is therefore not eligible to execute in the LMM Guaranteed BidProcess. In this case, the process proceeds to step 1832, and executesthe lead market maker guaranteed allocation according to steps 1832through 1844 (or 1846) as described above.

Returning to step 1828, if, however, there are no additional displayedcustomer buy orders at the NBB, then the process also proceeds to step1832 at this point, and executes the lead market maker guaranteedallocation according to steps 1832 through 1844 (or 1846) as describedabove.

The LMM Guaranteed Offer Process

Referring now to FIG. 19, the LMM Guaranteed Order Process isillustrated. At step 1900, the process is initiated. At step 1902, theprocess retrieves the lead market maker's offer. In step 1904, theprocess checks if the lead market maker's offer is at the NBO price. Ifthe lead market maker's offer is inferior to the NBO, then the leadmarket maker is not entitled to guaranteed participation with theincoming buy order, and the process continues to step 1906, where itreturns to the step where it was originally invoked.

Returning to step 1904, if, however, the lead market maker's offer is atthe NBO, then the lead market maker is entitled to guaranteedparticipation with the incoming buy order. The process proceeds to step1908, where it checks if the incoming buy order's size is greater thantwo contracts. If it is less than or equal to two contracts, then theprocess continues to step 1909, where it matches the incoming buy orderwith one contract of the lead market offer, at the NBO price. It doesthis by generating an immediate or cancel (“IOC”) sell pseudo-order onbehalf of the underlying lead market maker offer, and executing theincoming buy order against the sell pseudo-order. After executing thesell pseudo-order, the order matching engine notifies the market makerquote engine 32 b of the quantity of contracts that executed (onecontract) so that it can decrement the lead market maker's offer.

Then at step 1910, the process checks if the incoming buy order stillhas one contract available to trade. If it does not, then the processterminates in step 1912 as indicated. If it does, then the processcontinues to step 1911, where it matches the single remaining contractof the incoming buy order with one contract of the best displayed offer.The best displayed offer is the sell order or quote with the highestranking in the Display Order Process according to price/time priority.The process terminates in step 1912 as indicated.

Returning to step 1908, if, however, the incoming buy order has morethan two contracts available to execute, then the process, in thisembodiment, determines if there are any customer orders that areeligible to execute ahead of the lead market maker's offer. Accordingly,the process proceeds to step 1914, where it checks if there are anydisplayed customer sell orders at the NBO.

If there are no displayed customer sell orders at the NBO, then the leadmarket maker is entitled to participate immediately with the incomingbuy order. The process proceeds to step 1932, where it retrieves, astored, configurable guaranteed allocation parameter determined by themarket center's business rules (“LMMGuaranteedPercent”). At step 1934,the process computes the maximum quantity of contracts that the leadmarket maker is guaranteed for execution (“LMMGuaranteedAllocation”) bymultiplying the remaining (“Leaves”) quantity of the incoming buy orderby the LMMGuaranteedPercent parameter, and rounding the result down tothe nearest integer value if necessary. In step 1938, the processmatches the incoming buy order with the lead market maker's offer, atthe NBO price, up to the lesser of the computed LMMGuaranteedAllocationsize and the lead marker maker offer size. It does this by generating anIOC sell pseudo-order on behalf of the underlying lead market makeroffer, and executing the incoming buy order against the sellpseudo-order. After executing the sell pseudo-order, the order matchingengine notifies the market maker quote engine 32 b of the quantity ofcontracts that executed so that it can decrement the lead market maker'soffer.

In step 1942, the process checks if the incoming buy order still has anycontracts available to trade. If the incoming buy order has beencompletely executed, then the process terminates in step 1944 asindicated. However, if the incoming buy order still has contractsavailable to trade, then the process returns to the step where it wasoriginally invoked, so that the incoming buy order can continue toexecute against other offers if possible. The LMM Guaranteed OfferProcess is completed, and any remaining quantity of the incoming buyorder is released to the Display Order Process.

Returning to step 1914, if, however, there are displayed customer sellorders at the NBO, then the process continues to step 1916, where itretrieves the timestamp assigned to the lead market maker's offer (thetime assigned by the market maker quote engine 32 b) and stores it inthe parameter “LMMOfferTimestamp.” In step 1918, the process retrievesthe earliest displayed customer sell order at the NBO. In step 1920, theprocess compares the timestamp of the retrieved customer sell order withthe LMMOfferTimestamp parameter, and if the customer sell order precededthe lead market maker's offer, then the process continues to step 1922,where it matches the incoming buy order with the retrieved customer sellorder at the NBO price.

In step 1924, the process checks if the incoming buy order still hascontracts available to trade. If it does not, then the processterminates in step 1926 as indicated. If it does, then the processcontinues to step 1928, where it checks if there are any additionaldisplayed customer sell orders priced at the NBO. If there areadditional customer orders, then in step 1930, the process retrieves thenext earliest displayed customer sell order at the NBO and returns tostep 1920, where it checks if the newly-retrieved customer sell orderwas received prior to the lead market maker's offer. It repeats thisprocess until all customer sell orders with price/time priority over thelead market maker's offer have been matched, unless the incoming buyorder is exhausted first.

Returning to step 1920, if however, the timestamp of the retrievedcustomer sell order is not lower than the LMMOfferTimestamp, then thecustomer order was not received prior to the lead market maker's offer,and is therefore not eligible to execute in the LMM Guaranteed OfferProcess. In this case, the process proceeds to step 1932, and executesthe lead market maker guaranteed allocation according to steps 1932through 1944 (or 1946) as described above.

Returning to step 1928, if, however, there are no additional displayedcustomer sell orders at the NBO, then the process also proceeds to step1932 at this point, and executes the lead market maker guaranteedallocation according to steps 1932 through 1944 (or 1946) as describedabove.

The Directed Order Process

Referring now to FIGS. 20A-208, the Directed Order Process isillustrated. When the market center 20 receives a directed order, itmust first determine if the order sending firm 26 is permissioned todirect orders to the designated market maker firm 31. At step 2000, theprocess is initiated. At step 2002, the process sets the parameterdesignated as “OSF” to the order sending firm identification (“ID”)included on the incoming directed order. Then, at step 2004, the processretrieves a designated market maker/order sending firm (“DMM/OSF”)permissions table, similar to the exemplary one depicted in FIG. 20B.

At step 2006, the process checks if the incoming directed order includesthe ID of a designated market maker, i.e., a specific market maker firmthat is the intended recipient of this directed order. If a designatedmarket maker is not specified, then the process continues to step 2012,where it consults the DMM/OSF permissions table to see if a defaultdesignated market maker has been established for this order sendingfirm. If no default market maker has been established in the DMM/OSFpermissions table, then the incoming order cannot execute in theDirected Order Process, but it may be able to execute in one of the LMMGuarantee Processes instead. Accordingly, the process continues to step2013, where it checks if the incoming order is a buy or sell. If theincoming order is a buy order, then the process continues to step 2014,where it initiates the LMM Guaranteed Offer Process. After the LMMGuaranteed Offer Process is complete, the process then continues to step2030, where it returns to the step where the routine was originallyinitiated. If, however, the incoming order is a sell order, then theprocess continues to step 2015, where it initiates the LMM GuaranteedBid Process. After the LMM Guaranteed Bid Process is complete, theprocess then continues to step 2032, where it returns to the step wherethe routine was originally initiated.

Referring again to step 2006, if the directed order includes the ID of adesignated market maker, then the process, at step 2008, assigns thedesignated market maker ID to the parameter “DMM.” At step 2010, theprocess consults the DMM/OSF permissions table to determine if a ruleexists for this DMM/OSF pair. If a rule does not exist, then this ordersending firm 26 is not permissioned to send directed orders to thisdesignated market maker. In this case, the incoming order cannot executein the Directed Order Process, but it may be able to execute in a LMMGuarantee Process instead. Accordingly, the process continues to step2013 where it checks if the incoming order is a buy order or a sellorder and then proceeds as described in the steps above.

Referring again to step 2010, however, if a rule does exist for theDMM/OSF pair, then this order sending firm 26 is permissioned to senddirected orders to the designated market maker 31, That being the case,the process continues to step 2018, where it checks if the incomingdirected order is a buy order or a sell order.

Referring again to step 2012, if the process determines that a defaultdesignated market maker exists for the order sending firm sending theorder, then the process, at step 2016 sets the parameter designated as“DMM” to the default market maker ID and continues to step 2018. At step2018, the process determines whether the incoming directed order is abuy order or a sell order. If the directed order is a buy order, thenthe process proceeds to step 2020, where the DMM Guaranteed OfferProcess is initiated, and the process proceeds to step 2200 (FIG. 22).After the DMM Guaranteed Offer Process is complete, the process proceedsto step 2022 where it returns to the step where the routine wasoriginally initiated. If, on the other hand, the directed order is asell order, then the process proceeds to step 2024, where the DMMGuaranteed Bid Process is initiated, and the process proceeds to step2100 (FIG. 21). After the DMM Guaranteed Bid Process is complete, theprocess proceeds to step 2026 where it returns to the step where theroutine was originally initiated.

The DMM Guaranteed Bid Process

Where the process has determined that an incoming sell order was sent byan order sending firm 26 that is permissioned to send directed orders toa market maker firm 31, the DMM Guaranteed Bid Process is activated asindicated at step 2100 (FIG. 21). FIG. 21 illustrates a routine whereinthe order matching engine 21 executes the incoming directed sell orderin the Directed Order Process, but only if the designated market maker'sbid is at the NBB. The DMM Guaranteed Bid Process is very similar to thepreviously described LMM Guaranteed Bid Process, as the designatedmarket maker in this situation receives the same privileges as the leadmarket maker for the purpose of executing with the incoming directedorder.

At step 2102, the process retrieves the designated market maker's bid.In step 2104, the process checks if the designated market maker's bid isat the NBB price. If the designated market maker's bid is inferior tothe NBB, then the designated market maker is not entitled to guaranteedparticipation with the incoming directed sell order. However, the leadmarket maker may still be entitled to participate with the incomingorder instead. Accordingly, the process continues to step 2106, wherethe LMM Guaranteed Bid Process is activated.

Returning to step 2104, if, however, the designated market maker's bidis at the NBB, then the designated market maker is entitled toguaranteed participation with the incoming order. The process proceedsto step 2108, where, in this embodiment, it checks if the incomingdirected sell order's size is greater than two contracts. If it is lessthan or equal to two contracts, then the process continues to step 2109,where it matches the incoming sell order with one contract of thedesignated market maker's bid, at the NBB price. It does this bygenerating an IOC buy pseudo-order on behalf of the underlyingdesignated market maker bid, and executing the incoming sell orderagainst the buy pseudo-order. After executing the buy pseudo-order, theorder matching engine notifies the market maker quote engine 32 b of thequantity of contracts that executed (one contract) so that it candecrement the designated market maker's bid.

In step 2110, the process checks if the incoming sell order still hasone contract available to trade. If it does not, then the processterminates in step 2112 as indicated. If it does, then the processcontinues to step 2111, where it matches the single remaining contractof the incoming sell order with one contract of the best displayed bid.The best displayed bid is the buy order or quote with the highestranking in the Display Order Process according to price/time priority.The process terminates in step 2112 as indicated.

Returning to step 2108, if, however, the incoming directed sell orderhas more than two contracts available to execute, then the process mustdetermine if there are any customer orders that are eligible to executeahead of the designated market maker's bid. Accordingly, it proceeds tostep 2114, where it checks if there are any displayed customer buyorders at the NBB.

If there are no displayed customer buy orders at the NBB, then thedesignated market maker is entitled to participate immediately with theincoming directed sell order. The process proceeds to step 2132, whereit retrieves a stored, configurable guaranteed allocation parameterdetermined by the market center's business rules(“DMMGuaranteedPercent”). In step 2134, the process computes the maximumquantity of contracts that the designated market maker is guaranteed forexecution (“DMMGuaranteedAllocation”) by multiplying the remaining(“Leaves”) quantity of the incoming directed sell order by theDMMGuaranteedPercent parameter, and rounding the result down to thenearest integer value if necessary. In step 2138, the process matchesthe incoming sell order with the designated market maker bid, at the NBBprice, up to the lesser of the computed DMMGuaranteedAllocation size andthe designated market maker bid size. It does this by generating an IOCbuy pseudo-order on behalf of the underlying designated market makerbid, and executing the incoming sell order against the buy pseudo-order.After executing the buy pseudo-order, the order matching engine notifiesthe market maker quote engine 32 b of the quantity of contracts thatexecuted so that it can decrement the designated market maker's bid.

In step 2142, the process checks if the incoming directed sell orderstill has any contracts available to trade. If the incoming directedsell order has been completely executed, then the process terminates instep 2144 as indicated. However, if the incoming directed sell orderstill has contracts available to trade, then the process continues tostep 2146, where it returns to the step where it was originallyinitiated, so that the incoming sell order (no longer directed) cancontinue to execute against other bids if possible. The DMM GuaranteedBid Process is completed, and any remaining quantity of the incomingsell order is released to the Display Order Process.

Returning to step 2114, if, however, there are displayed customer buyorders at the NBB, then the process continues to step 2116, where itretrieves the timestamp assigned to the designated market maker's bid(the time assigned by the market maker quote engine 32 b) and stores itin the parameter “DMMBidTimestamp.” In step 2118, the process retrievesthe earliest displayed customer buy order at the NBB. In step 2120, theprocess compares the timestamp of the retrieved customer buy order withthe DMMBidTimestamp parameter, and if the customer buy order precededthe designated market maker bid, then the process continues to step2122, where it matches the incoming directed sell order with theretrieved customer buy order at the NBB price.

In step 2124, the process checks if the incoming directed sell orderstill has contracts available to trade. If it does not, then the processterminates in step 2126 as indicated. If it does, then the processcontinues to step 2128, where it checks if there are any additionaldisplayed customer buy orders priced at the NBB. If there are additionalcustomer orders, then in step 2130, the process retrieves the nextearliest displayed customer buy order at the NBB and returns to step2120, where it checks if the newly-retrieved customer buy order wasreceived prior to the designated market maker's bid. It repeats thisprocess until all customer buy orders with price/time priority over thedesignated market maker's bid have been matched, unless the incomingdirected sell order is exhausted first.

Returning to step 2120, if, however, the timestamp of the retrievedcustomer buy order is not lower than the DMMBidTimestamp, then thecustomer order was not received prior to the designated market makersbid, and is therefore not eligible to execute in the Directed OrderProcess. In this case, the process proceeds to step 2132, and executesthe designated market maker guaranteed allocation according to steps2132 through 2144 (or 2146) as described above.

Returning to step 2128, if, however, there are no additional displayedcustomer buy orders at the NBB, then the process also proceeds to step2132, and executes the designated market maker guaranteed allocationaccording to steps 2132 through 2144 (or 2146) as described above.

The DMM Guaranteed Offer Process

Where the process has determined that an incoming buy order was sent byan order sending firm 26 that is permissioned to send directed orders toa market maker firm 31, the DMM Guaranteed Offer Process is activated asindicated at step 2200 (FIG. 22). FIG. 22 illustrates a routine whereinthe order matching engine 21 executes the incoming directed buy order inthe Directed Order Process, but only if the designated market maker'soffer is at the NBO. The DMM Guaranteed Offer Process is very similar tothe previously described LMM Guaranteed Offer Process, as the designatedmarket maker in this situation receives the same privileges as the leadmarket maker for the purpose of executing with the incoming directedorder.

At step 2202, the process retrieves the designated market maker's offer.In step 2204, the process checks if the designated market maker's offeris at the NBO price. If the designated market maker's offer is inferiorto the NBO, then the designated market maker is not entitled toguaranteed participation with the incoming directed buy order. However,the lead market maker may still be entitled to participate with theincoming order instead. Accordingly, the process continues to step 2206,where the LMM Guaranteed Offer Process is activated.

Returning to step 2204, if, however, the designated market maker's offeris at the NBO, then the designated market maker is entitled toguaranteed participation with the incoming order. The process proceedsto step 2208, where, in this embodiment, it checks if the incomingdirected buy order's size is greater than two contracts. If it is lessthan or equal to two contracts, then the process continues to step 2209,where it matches the incoming buy order with one contract of thedesignated market maker's offer, at the NBO price. It does this bygenerating an IOC sell pseudo-order on behalf of the underlyingdesignated market maker offer, and executing the incoming buy orderagainst the sell pseudo-order. After executing the sell pseudo-order,the order matching engine notifies the market maker quote engine 32 b ofthe quantity of contracts that executed (one contract) so that it candecrement the designated market maker's offer.

In step 2210, the process checks if the incoming buy order still has onecontract available to trade. If it does not, then the process terminatesin step 2212 as indicated. If it does, then the process continues tostep 2211, where it matches the single remaining contract of theincoming buy order with one contract of the best displayed offer. Thebest displayed offer is the sell order or quote with the highest rankingin the Display Order Process according to price/time priority. Theprocess terminates in step 2212 as indicated.

Returning to step 2208, if, however, the incoming directed buy order hasmore than two contracts available to execute, then the process mustdetermine if there are any customer orders that are eligible to executeahead of the designated market maker's offer. Accordingly, it proceedsto step 2214, where it checks if there are any displayed customer sellorders at the NBO.

If there are no displayed customer sell orders at the NBO, then thedesignated market maker is entitled to participate immediately with theincoming directed buy order. The process proceeds to step 2232, where itretrieves a stored, configurable guaranteed allocation parameterdetermined by the market center's business rules(“DMMGuaranteedPercent”). In step 2234, the process computes the maximumquantity of contracts that the designated market maker is guaranteed forexecution (“DMMGuaranteedAllocation”) by multiplying the remaining(“Leaves”) quantity of the incoming directed buy order by theDMMGuaranteedPercent parameter, and rounding the result down to thenearest integer value if necessary. In step 2238, the process matchesthe incoming buy order with the designated market maker's offer, at theNBO price, up to the lesser of the computed DMMGuaranteedAllocation sizeand the designated market maker offer size. It does this by generatingan IOC sell pseudo-order on behalf of the underlying designated marketmaker offer, and executing the incoming buy order against the sellpseudo-order. After executing the sell pseudo-order, the order matchingengine notifies the market maker quote engine 32 b of the quantity ofcontracts that executed so that it can decrement the designated marketmaker's offer.

In step 2242, the process checks if the incoming directed buy orderstill has any contracts available to trade. If the incoming directed buyorder has been completely executed, then the process terminates in step2244 as indicated. However, if the incoming directed buy order still hascontracts available to trade, then the process continues to step 2246,where it returns to the step where it was originally initiated, so thatthe incoming buy order (no longer directed) can continue to executeagainst other offers if possible. The DMM Guaranteed Offer Process iscompleted, and any remaining quantity of the incoming buy order isreleased to the Display Order Process.

Returning to step 2214, if, however, there are displayed customer sellorders at the NBO, then the process continues to step 2216, where itretrieves the timestamp assigned to the designated market maker's offer(the time assigned by the market maker quote engine 32 b) and stores itin the parameter “DMMOfferTimestamp.” In step 2218, the processretrieves the earliest displayed customer sell order at the NBO. In step2220, the process compares the timestamp of the retrieved customer sellorder with the DMMOfferTimestamp parameter, and if the customer sellorder preceded the designated market maker's offer, then the processcontinues to step 2222, where it matches the incoming directed buy orderwith the retrieved customer sell order at the NBO price.

In step 2224, the process checks if the incoming directed buy orderstill has contracts available to trade. If it does not, then the processterminates in step 2226 as indicated. If it does, then the processcontinues to step 2228, where it checks if there are any additionaldisplayed customer sell orders priced at the NBO. If there areadditional customer orders, then in step 2230, the process retrieves thenext earliest displayed customer sell order at the NBO and returns tostep 2220, where it checks if the newly retrieved customer sell orderwas received prior to the designated market maker's offer. It repeatsthis process until all customer sell orders with price/time priorityover the designated market maker's offer have been matched, unless theincoming directed buy order is exhausted first.

Returning to step 2220, if, however, the timestamp of the retrievedcustomer sell order is not lower than the DMMOfferTimestarp, then thecustomer order was not received prior to the designated market maker'soffer, and is therefore not eligible to execute in the Directed OrderProcess. In this case, the process proceeds to step 2232, and executesthe designated market maker guaranteed allocation according to steps2232 through 2244 (or 2246) as described above.

Returning to step 2228, if, however, there are no additional displayedcustomer sell orders at the NBO, then the process also proceeds to step2232, and executes the designated market maker guaranteed allocationaccording to steps 2232 through 2244 (or 2246) as described above.

While the disclosure has been discussed in terms of certain embodiments,it should be appreciated that the disclosure is not so limited, Theembodiments are explained herein by way of example, and there arenumerous modifications, variations and other embodiments that may beemployed that would still be within the scope of the present disclosure.

The invention claimed is:
 1. A computing system for automaticallyrepricing orders to enhance execution opportunities, the computingsystem comprising: an order matching engine configured to maintain anorder book and a market maker quote book, each storing orders associatedwith a respective option series; an away market quote engine configuredto maintain an away market best bid and offer book that is separate fromthe order book and the market maker quote book; one or more interfacesconfigured to receive orders and quotes from one or more away marketcenter systems; a memory storing code; and a processor interacting withthe one or more interfaces and the engines and executing the code,wherein the code, when executed, causes the computing system to:receive, via the one or more interfaces, an away market quote from anaway market center system; store, by the away market quote engine, theaway market quote in the away market best bid and offer book; analyze,by the away market quote engine, the received quote and determinewhether the away market quote has moved into or away from a price of acontra-side order stored in the order book; notify, by the away marketquote engine, the order matching engine that the away market quote hasmoved into or away from the price of the contra-side order; evaluate, bythe order matching engine, the contra-side order to determine whethersaid contra-side order can be repriced; and reprice, by the ordermatching engine, the contra-side order upon determining that thecontra-side order can be repriced.
 2. The computing system of claim 1,wherein the received away market quote is for a specified option seriesmaintained on the computing system, and wherein the contra-side ordercomprises an automatically repriceable order that also pertains to saidspecified option series, said automatically repriceable order beingstored in the order book.
 3. The computing system of claim 1, whereinthe contra-side order comprises a stand-your-ground inside limit order.4. The computing system of claim 3, further comprising a lead marketmaker guarantee entitlement process, a display order process, a workingorder process, and a routing process, wherein the stand-your-groundinside limit order attempts to execute in the lead market makerguarantee entitlement process, the display order process, the workingorder process, and the routing process, and any remaining portion of thestand-your-ground inside limit order is posted to the order book at itsrepriced price.
 5. The computing system of claim 1, wherein thecontra-side order comprises a sweep limit order.
 6. The computing systemof claim 5, further comprising a lead market maker guarantee entitlementprocess, a display order process, a working order process, and a routingprocess, wherein the sweep limit order attempts to execute in the leadmarket maker guarantee entitlement process, the display order process,the working order process, and the routing process, and any remainingportion of the sweep limit order is posted to the order book at itsrepriced price.
 7. The computing system of claim 1, wherein thecontra-side order comprises an intermarket sweep limit order.
 8. Thecomputing system of claim 7, further comprising a lead market makerguarantee entitlement process, a display order process, a working orderprocess, and a routing process, wherein the intermarket sweep limitorder attempts to execute in the lead market maker guarantee entitlementprocess, the display order process, the working order process, and therouting process, and any remaining portion is posted to the order bookat its repriced price.
 9. The computing system of claim 1, wherein thecontra-side order comprises a reprice-and-ship inside limit order. 10.The computing system of claim 9, further comprising a lead market makerguarantee entitlement process, wherein the away market quote enginedetermines that the away market quote has moved into the price of thecontra-side order, and wherein the reprice-and-ship inside limit orderattempts to execute in the lead market maker guarantee entitlementprocess and then routes to the away market quote that moved into itsdisplay price.
 11. The computing system of claim 1, wherein: if the awaymarket quote engine determines that the away market quote has moved awayfrom the price of the contra-side order, the reprice comprises a pricethat is more aggressive than the price of the contra-side order, and ifthe away market quote engine determines that the away market quote hasmoved into the price of the contra-side order, the order matching enginedetermines whether the contra-side order needs to be priced lessaggressively, and upon determining that the contra-side order does needto be priced less aggressively, reprices said contra-side order to haveless aggressive price.
 12. A computer-implemented method forautomatically repricing orders to enhance execution opportunities, themethod comprising: providing a computing system comprising: an ordermatching engine configured to maintain an order book and a market makerquote book, each storing orders associated with a respective optionseries, an away market quote engine configured to maintain an awaymarket best bid and offer book that is separate from the order book andthe market maker quote book, one or more interfaces configured toreceive orders and quotes from one or more away market center systems, amemory storing code, and a processor interacting with the one or moreinterfaces and the engines and executing the code, thereby causing thecomputing system to perform the steps of: receiving, via the one or moreinterfaces, an away market quote from an away market center system;storing, by the away market quote engine, the away market quote in theaway market best bid and offer book; analyzing, by the away market quoteengine, the received quote and determine whether the away market quotehas moved into or away from a price of a contra-side order stored in theorder book; notifying, by the away market quote engine, the ordermatching engine that the away market quote has moved into or away fromthe price of the contra-side order; evaluating, by the order matchingengine, the contra-side order and determining whether said contra-sideorder can be repriced; and repricing, by the order matching engine, thecontra-side order upon determining that the contra-side order can berepriced.
 13. The method of claim 12, wherein the received away marketquote is for a specified option series maintained on the computingsystem, and wherein the contra-side order comprises an automaticallyrepriceable order that also pertains to said specified option series,said automatically repriceable order being stored in the order book. 14.The method of claim 12, wherein the contra-side order comprises astand-your-ground inside limit order.
 15. The method of claim 14,further comprising: executing, by the computing system, thestand-your-ground inside limit order via at least one of a lead marketmaker guarantee entitlement process, a display order process, a workingorder process and a routing process; and posting, by the computingsystem following said executing, any remaining portion of thestand-your-ground inside limit order to the order book at its repricedprice.
 16. The method of claim 12, wherein the contra-side ordercomprises a sweep limit order.
 17. The method of claim 16, furthercomprising: executing, by the computing system, the sweep limit orderattempts via at least one of a lead market maker guarantee entitlementprocess, a display order process, a working order process, and a routingprocess; and posting, by the computing system following said executing,any remaining portion of the sweep limit order to the order book at itsrepriced price.
 18. The method of claim 12, wherein the contra-sideorder comprises an intermarket sweep limit order.
 19. The method ofclaim 18, further comprising: executing, by the computing system, theintermarket sweep limit order via at least one of a lead market makerguarantee entitlement process, a display order process, a working orderprocess and a routing process; and posting, by the computing systemfollowing said executing, any remaining portion of the intermarket sweeplimit order to the order book at its repriced price.
 20. The method ofclaim 12, wherein the contra-side order comprises a reprice-and-shipinside limit order.
 21. The method of claim 20, wherein the away marketquote engine determines that the away market quote has moved into theprice of the contra-side order, the method further comprising:executing, by the computing system, the reprice-and-ship inside limitorder via a lead market maker guarantee entitlement process; androuting, by the computing system following said executing, thereprice-and-ship inside limit order to the away market quote that movedinto its display price.
 22. The method of claim 12, wherein the awaymarket quote engine refrains from notifying the order matching enginewhen the away market quote engine determines that the away market quotehas not moved into or away from the price of the contra-side order. 23.The method of claim 12, wherein: if the away market quote enginedetermines that the away market quote has moved away from the price ofthe contra-side order, the method comprises repricing the contra-sideorder to have a more aggressive price, and if the away market quoteengine determines that the away market quote has moved into the price ofthe contra-side order, the method further comprises: determining, by theorder matching engine, whether the contra-side order needs to be pricedless aggressively; and upon determining that the contra-side order doesneed to be priced less aggressively, repricing, by the order matchingengine, said contra-side order to have less aggressive price.